CFO’s and CMO’s - An arranged marriage that may work after all.
50% of the CFO’s don’t think marketing delivers on the promise of driving growth
According to a recent in-depth McKinsey study, marketing is a company’s main growth driver, on the condition that there is a good relationship between the CMO and the other C-suite members.
The study stated that:
A good relationship is especially important with the CFO, who often happens to be the most sceptical about seeing a tangible contribution of marketing to the company performance.
50% of the CFO’s don’t think marketing delivers on the promise of driving growth.
Following our discussion with CFO Emmanuel Delia, who has been CFO for both publicly traded enterprises and young startups, it is mainly due to a lack of common understanding in marketing effectiveness and within the metrics they use. But now there is a possible solution for that, with Share of Search.
The CFO - CMO pyramid a solution for creating a common ground
“A good CFO know’s it’s about maximising budgets and not just saving themselves into profitability,” starts Delia,” so our job as CFOs is to support business areas in helping each budget owners to plan and build their budgets well and get most out them.
Lack of leading indicators a reason for diconnect between CMO and CFO - Emmanuel Delia, CFO
For marketing, however, it is often hard to see that contribution to the bottom line, most of their work happens prior to the purchase moment. The numbers we as CFOs utilize for our FP&A (Financial Planning & Analysis) will be driven from the sales point and onward (lagging indicators). This means marketing always has to backtrack their numbers into the sales figures. This makes it especially hard to see who contributed to sales and growth.” Delia says.
No lack of marketing metrics
it has not been easy to show how the investment in marketing has led to the to the impact prior to the moment of sales. This could be the main reason for the disconnect between CMO and CFO.
By having a so-called “leading indicator” for marketing that can be followed up with the actual sales (lagging indicator) the CMO would be much more successful at showing marketing’s true impact on the bottom line.
“Having a leading indicator would surely help,”clarifies Delia, “especially considering CFO’s mainly track 5 variables, regardless of industry. These are:
sales growth,
earnings, margins,
asset turnover and
leverage.
They might be called differently depending on the type of products or services sold, but will essentially be the same.”
Share of Search an ideal bridge between CMO’s and CFO’s
By looking at Share of Search first to check how much genuine interest that has been generated you then have a solid common base to look at the other common marketing metrics to identify WHAT helped generate that interest.
Was it an advertising campaign we ran? or a PR initiative? How did it affect our analytics afterwards?
”Share of Search could be an ideal bridge between CMO’s and CFO’s” and could potentially put marketing even more in the growth-driver's seat as it covers, not all, but multiple of the levers. All the marketing metrics we currently have are still very relevant and necessary explains Fred Pirenne, CSO at My Telescope”.
Marketing needs to get its own space within financial reporting in which it can show its contribution to the bottom line. “I’m not very familiar with Share of Search as a metric, but looking at it like this, it does look like a promising metric to bridge that gap between marketing and finance,” concludes Delia.
The CFO -CMO pyramid explained
“Today, marketers already try telling us how they contribute to each of these, but how much volume is really driven by our marketing efforts, and how much of the price is really based on brand strength?” questions Emmanuel. ”Those are the answers I would need in order to better understand and support our marketing budgets.”
Volumes: as the correlation between Share of Search and market share has already been proven at various occasions, Share of Search can help identify future sales volumes, number of users or customers.
Price: running share of search on various types of competitors in different price levels, can help marketers get an indication of the price levels their customers are willing to pay for their products or services.
Cost: looking at the potential volume and the customer acquisition costs, the CMO can support the CFO in generating a more total picture of the foreseen costs.