Today our guest author Frank Mastronuzzi of Punch Financial explores the joint role a CFO and CMO should share when planning marketing campaigns and measuring their ROI.
The CMO and CFO positions are like star-crossed lovers – perfect for one another but bridged by a series of seemingly insurmountable challenges. It used to be that these roles were more or less completely siloed from one another to the detriment of the organization they work for. After all, traditionally finance and marketing speak different love languages (by which I mean they tend to focus on different KPIs). But this trend is changing.
90% of respondents in an EY survey of more than 300 marketing and finance leaders believe that marketing and finance need to work more closely as their businesses pursue digital transformation. 83% assert that their company’s marketing activity would be more effective if marketing and finance were more closely aligned.
The expected role of CFO strategy has expanded considerably and includes functions such as making IT decisions and being an advocate for changes across the organization. Here at Punch Financial, a big part of our CFO consulting role within organizations is helping to align objectives across the board as well as assisting with their digital transformation.
Bringing the CFO and CMO to the table together regularly, as well as bridging the gap by using intelligent reporting dashboards, ensures the CFO is confident to release a marketing budget large enough to drive objectives that are proven to supercharge revenue.
How a CMO and CFO Can Understand the True ROI of Marketing Efforts
40% of European CFOs surveyed in a joint study between Xerox and consultancy Coleman Parkes believed that marketing has a positive impact on profitability, but their organization had not made a proper effort to determine the real impact. Conversely, 37% of CMOs surveyed by Forrester feel that the relationship with the CFO is critical for true accountability of marketing in overall financial performance.
It can often feel like CMOs and CFOs speak a slightly different language, with CFOs focusing on tangible returns and the CMO focusing on intangibles like the share of voice and brand perception. The CMO and CFO can work together to understand the true value of marketing efforts and determine which channels are driving the most success.
The simplest equation for calculating marketing ROI for a specific tactic like paid online advertising is:
(Attributed Revenue — Investment) / Investment
However, this can be a simplistic measure. Marketing efforts involve many touchpoints that are less tangible such as newsletters, blog posts, organic social media posts, and more. All of these are part of the buyer journey, but much harder to measure.
However, with enough data on the average conversion rate of organic touchpoints and the LTV of those customers, you can then have a better understanding of how digital marketing informs revenue. Per Investopedia:
Using a 12-month campaign lead-up, you can calculate the existing sales trend. If sales are seeing an organic growth on average of 4% per month over the last 12-month period, then your ROI calculation for the marketing campaign should strip out 4% from the sales growth.
As a result, it becomes:
(Sales Growth – Average Organic Sales Growth – Marketing Cost) / Marketing Cost = ROI
So, let’s say we have a company that averages 4% organic sales growth and they run a $10,000 campaign for a month. The sales growth for that month is $15,000. As mentioned, 4% ($600) of that is organic based on historical monthly averages. The calculation goes:
($15,000 – $600 – $10,000) / $10,000 = 44%
In this example, taking out organic growth only dropped the number from 50% to 44%, but that is still stellar by any measure.
These types of ROI measurements are important for any business to confirm that its marketing efforts are bearing fruit. No CMO wants to be stifled by a low marketing budget, and having this data-focused relationship ensures the CFO is better positioned to make a case for higher allocation.
You can use Google Analytics and other more robust marketing dashboarding tools to keep track of conversions and assign them a value, making it easy to track ROI over time. You can even create advanced models that can assign value to specific steps in the customer journey, and use multi-touch attribution to keep an eye on how paid and organic marketing channels inform each other’s success. These types of dashboards ensure that the CMO and CFO are always in communication and have relevant KPIs to share.
How a CFO Can Help a CMO Early in the Campaign Marketing Planning Process
Of course, a big part of CFO finance strategy planning should be working with the CMO early on when considering any marketing investment.
In a blog by fractional CMO Sonja Ceri on LinkedIn, she outlines some advice from Simple HQ related to defining marketing objectives with the finance function of the business:
“It’s important to keep the number of objectives small (maximum five), which enables both teams to measure the outcomes. Involving finances in the planning process ensures that the vision is anchored in a solid foundation that supports the organization’s financial directives at all times…
At the start of the strategic alliance is the time to translate financial goals into actionable marketing tactics. You can only do marketing if the CFO signs off on it and releases the budget. Vice versa, budgets can only sustain if marketing and sales goals can be achieved. This requires regular check-ins to review KPIs, milestones, and development in the sales pipeline.”
With an increased level of confidence in how marketing efforts are driving revenue, the CMO and CFO can work effectively together without worrying about crossed wires.
About The Author
When it comes to startup finances, you want to partner with Punch Financial and Frank Mastronuzzi. Starting with the early days at Match.com, Frank has over 15 years of working in a startup environment and with startups. Frank has helped fast-growth companies, including LootCrate, Honey Science Corp, Kangarootime, WaveVR, Boulevard, and Retina.ai, grow their companies from inception to growth companies.
Beyond his strategic role as a strategic CFO, Frank is a revenue-focused and hands-on, financial advisor. He gets actively involved in revenue model, projections, insurance, fundraising, risk management, business development, and customer acquisition. Punch Financial also helps early-stage companies raise funding through an active network of angels, VCs, and institutional investors.