Dear CFO: An Open Letter About the CMO-CFO Relationship

 

If you had the chance to voice your concerns as a marketer to your finance team, perhaps even your company CFO, what would you say? Would you talk budget concerns, lack of resources, department silos, maybe even some new ideas on how to improve communication between CMOs and CFOs.

I had a chance to connect with Matt Dopkiss, CEO and founder of Dynamit, a data, design, and technology company to try and find some solutions to some of these concerns as we head into 2015. In a candid Q&A interview, I realized that Matt had written a sort-of open letter to CFOs—and marketers—that could possibly help close the gap between these departments; a letter that, perhaps ,would even open a dialogue.

Here, in his own words, is his take on the challenges and potential solutions in the New Year.

The battle between marketing and finance is as old as business. When times are good, marketers secure budgets and march forward. And when times are bad, marketing budgets [I feel] get the first and deepest cuts.

“It doesn’t make any sense,” marketers grouse. “If revenues are down, shouldn’t we invest more in marketing?” And [in my opinion] they’re right, of course. If businesses actually believed in their marketing investment, they’d double-down in the midst of a sales slump. But—too often—they don’t.

Why? CFOs don’t trust marketing ROI.

There are two major reasons that CFOs do not trust CMOs. First, marketing suffers from its own vernacular. Marketers talk about impressions, TRPs, sentiment and clicks. The problem for the CFO is simple—they listen and process, but they can’t translate these ideas back to dollars. To the CFO’s mind, these metrics have no value.

Second, marketing ROI calculations are not credible. Marketers report on ROI, citing returns and measurements that sound like fantasy to the serious-minded CFO. Marketers fail to justify the rigor of their ROI calculations. And, often, the CFO is right—these calculations are deeply flawed.

And so, the cycle continues. Businesses make investments, CFOs fail to understand the return, and marketing budgets get chopped.

(Continue on page 2)

But there is a solution.

To end this cycle, marketers need to develop empathy for their audience. In this case, the audience is not the consumer—it’s the CFO.

The first strategy is to simplify. In presentations, CMOs should begin with a summary of the marketing investment as a simple equation of dollars in and dollars out. By framing the investment in straightforward financial language, the CFO will understand whether or not the marketer considers the investment to be a success.

The second strategy is to develop trust. The CFO needs to believe in the ROI presented by the marketer. To create this trust, the CMO must invest in the development of rigorous financial models to quantify marketing ROI. These models need to be financially sound and statistically supported. And most important the CMO must work closely with the CFO to ensure that the CFO believes in the models. Without trust, the CFO will never believe what the CMO presents.

Data and analytics are vital to sound financial models, but they can be tricky. To build a strong relationship with the CFO, the CMO needs to develop—and run—rigorous financial models. To create these models, the CMO needs to bring together expertise in finance, statistics, databases and information technology. Many marketing departments simply aren’t adequately staffed for this sort of effort.

In cases like this, businesses should consider an investment in data science, whether as a department within the organization or as a consulting relationship. This business-minded group needs the appropriate mandate and skill sets to wrangle the data required to power marketing-oriented financial models. It’s a complicated puzzle that requires new expertise.

Every investment has an expected return. No matter what the investment is, it’s relatively easy to describe the intended return. For example, if a company spends $100 on some advertising, it’s easy to explain why the company spent that money. That advertising should increase sales or attract new customers. That’s the return.

(Continue on page 3)

The difficulty, however, comes when you try to measure the return. If a company runs an advertising campaign and sales go up, how much credit does the advertising campaign get for that sales increase?

Many times, companies simply throw up their hands to say, “Well, we can’t measure the return.” When this happens, the cycle starts again — marketers make investments, CFOs don’t understand the return, and budgets get cut. It’s the root of the problem.

Marketers need to accept responsibility for their investments. CMOs must believe that all campaigns can be modeled and measured. CMOs must develop rigorous models to build a strong relationship with their financial counterparts. The tools for this sort of measurement exist. It’s time to use them.

No matter what the investment is, the challenge is always the same. Whether a business is marketing or buying new equipment, the CFO must understand the investment and its expected return. That said, it’s easier to measure direct marketing than it is to measure brand marketing. Direct marketing has an immediate outcome. The results come quickly.

Brand marketing, on the other hand, takes time. It’s absolutely possible to quantify the investment in brand marketing, but it’s also quite a bit more complicated. Without getting into too much detail, the way to measure any sort of ROI—brand marketing or otherwise—requires all parties to come to a solid agreement on a control model, a means of describing what would have happened without the marketing investment. Building a good control model is difficult. It can also be challenging to create buy-in around a control model. But, once established, marketers can measure what did happen against the control model as a basis for quantifying ROI.

Bring both a marketing and measurement plan to the table that includes clear milestones for analysis, options for future tests, hypotheses and maps over a multi-year period. In theory, a disciplined test-driven approach will empirically reduce capital deployment against things that don’t generate ROI. It’s hard for CFOs to argue against that.

Marketing is both an art and a science. Over the next few years, marketers will need to adopt more data-driven and scientific methods in order to stay competitive. This scientific backing will provide a much stronger foundation for the CMO-CFO relationship.

Total
0
Shares
Related Posts