Steven is an ex-finance director with 20 years’ experience from a 50-employee SME to a 130,000-employee blue-chip. In addition, he has worked with boards and non-finance teams, working alongside marketing, sales and commercial. With plenty of experience in finance, he gives some top tips for CMOs to consider when planning their marketing budgets.
DO: Cultivate a relationship with your CFO
The CFO is typically responsible for everything from long-term investment strategy, to the annual budget cycle, to daily forecasts of cash flow. They often have to balance competing investments and overheads against the long-term view of profit. If they haven’t already, CMOs should be cultivating strong relationships with their CFOs. Steven mentions a huge reason this relationship often goes overlooked is because the business performance is already right on target, so, in other words, ‘what’s the point?’
Steven says: “As is so often the case when things are going well, human psychology dictates that we may choose to ignore some of the negative aspects of performance. The efficacy of marketing investment and the effectiveness of marketing activity is one such area that many CFOs only have the bandwidth and strategic focus for when business performance begins to deteriorate.”
However, even if you’re right on target, it is important to have a pulse for where the CFO’s head is at when making budgeting decisions.
He adds: “In the absence of a strong relationship with the CMO, the CFO may have no other option but to reduce areas of ‘discretionary’ expenditure, such as travel and expenses, training, consultancy and marketing. The underlying reason is a lack of reporting and insight that ties marketing expenditure to profit.”
DO: Bring in marketing operations to serve as a ‘wingperson’
Speaking of a lack of data and reporting, let’s talk about a possible solution.
Steven says the personality types of CMOs and CFOs are quite different based on their responsibilities. For example, while the CFO might have a thirst for detail, data and numbers, the CMO might lean towards creativity, customer focus and innovations in marketing.
Bringing in a marketing operations team or person is a great way to bridge the gap between these two mindsets. Marketing operations can supply data, reporting and insights that the CMO can use in discussions with the CFO.
However, Steven warns: “A marketing operations person should not be the main contact point for the CFO, but a support for the CMO to demonstrate more credibility and insight into their marketing investments.”
DON’T: Solely focus on marketing revenue contribution
Marketing contribution to revenue is defined as the percentage of revenue generated from marketing, which means only revenue that originates as a lead in the funnel should be counted.
Steven says: “Unfortunately for the CMO, if they solely focus on and measure marketing contribution based on revenue, it facilitates an easier decision for the CFO to reduce the marketing budget when times are tough. This is because the CFO will prioritise profit and, most importantly, cash flow when business performance declines, which means marketing expenditure can be reduced with a lower perceived impact on the business.”
While this is obviously a critical component to focus on, it shouldn’t be the sole focus. They should be driving overall pipeline and revenue, regardless of the initial source or who gets credit. Steven mentions that this of course, depends on how the sales department is remunerated for achieving their targets.
He explains: “The CMO has a fantastic opportunity to engage with, educate and enable the CFO to understand the margin contribution of marketing.”
DO: Bring the CFO on board
In Steven’s experience as a finance director, he was aware of the impact a CFO could possibly have on a marketing budget. Early in his career, he had approached the finance director about cutting the marketing spend during a downturn.
Steven said the decision at the time was an easy one due to three components. Firstly, at the time, the director of sales didn’t believe that their spending on ‘brand building’ was helping them achieve their sales target. Secondly, the telemarketing team had marketing tracking codes that they recorded from direct mail and email campaigns and they found very few of the calls led to any reference to marketing activity. Finally, Steven spent some time with the CMO going over where the budget was spent. This investment in time led to a spreadsheet printout with expenditure items down the left-hand side and costs across the page in each month, but no measurement of ROI.
As a result, he ended up in a meeting with the entire marketing team and explained terms such as gross margin, EBITDA, ROI and cash flow.
He says: “I would recommend that all marketers consider that a major stakeholder on the board is the CFO and that being able to discuss numbers and performance will go a long way. In terms of credibility, it also facilitates an easier discussion with the CFO if any areas of ‘discretionary’ spend are proactively highlighted when business performance suffers so that the end result is not an all or nothing decision.”
DON’T: Ignore marketing return on investment
Don’t treat the budget as a list of expenditure items on a single document. It’s much more than just the organisation’s offerings being matched with perceived personas based on current messaging from sales.
“If the marketing strategy is based on evidence, the marketing plan fully-conceived and reviewed alongside areas of expenditure that are generating more or less return than others, you have a strong foundation for a credible discussion with the CFO.”
Steven cites ignoring marketing ROI as the most common pitfall for CMOs. Budget should not be treated as a ‘given’ and assumed to be fixed or based on last year plus 10%.
He says : “If budgets are approached as investments rather than costs, this change in mindset and justification could support a culture where marketing activity is truly linked to business results and marketing is eventually seen as a profit centre with limited scope for budget cuts and freezes.”
The goal is to be a profit centre, not a cost centre. Steven mentions that in bigger companies, head office functions are often mutually seen as cost centres.
He concludes: “What we don’t want is the next time there is a big crisis, we don’t want marketers losing their jobs, we don’t want them having the budget cut or frozen, we don’t want them turning off their martech products. We want people to say “okay, here’s something we can maybe remove that will help, but the rest of the spend is driving the profitability of the business and here’s how.”
