Traditionally CFOs and CMOs have not been best friends. That’s not surprising considering that CFOs are hard numbers people and the most famous marketing phrase is ““Half the money I spend on advertising is wasted; the trouble is I don’t know which half.” That was said, though, a century ago. Things have changed.
Today marketers have an unprecedented ability to track the behavior of customers and prospects and prove the contribution of marketing to revenue. It’s not perfect, and never will be, but the tools are far more sophisticated than they were even 10 years ago.
Let’s give the example of a person who buys a Samsung TV. Many factors may go into the selection of Samsung over LG, Panasonic or another brand including the buyer liking the Samsung brand in general (maybe the buyer has a Samsung smartphone), seeing a Samsung at a friend’s house, seeing Samsung commercials, a special promotion on Samsung when the buyer walks into the store, and more. Parsing out the actual factors that lead to an individual purchase can be difficult.
But companies can have a much better idea of what leads to sales in the aggregate. For example, a company can test TV ads by running them in one market and not in another, and then measuring the effect on sales (and other matters like website visits, downloads of product specs, sign-ups for demos, etc., that can indicate deeper interest).
In marketing this is called attribution – how we attribute the impact of the various marketing programs on revenue. Attribution models have become much more sophisticated over the past decade, and many companies, including Google, offer them. Some companies even develop their own attribution models.
The most easily measured programs are those that are online. The Internet empowers marketers to track every action and to constantly optimize their programs by ramping up those that work and phasing out those that don’t. When you know that half of your advertising is wasted, you just discontinue it and spend the budget on the programs that are effective.
But almost all programs can be measured today, including offline ones like direct mail, events, print, TV and radio.
One CFO said to me that he doesn’t want to hear about potential marketing ROI, he wants programs to be free: he wants to know what can be cut to pay for the new program. With analytics, that can be done. One client I worked with reduced their trade show participation from 29 to 6 and applied the savings to online advertising because that was so much more effective (reduction of trade shows is a common outcome of measuring marketing ROI). Another client doubled the number of leads that they were getting from their online advertising with no change in budget when we improved management of the campaign. Sometimes free is possible.
And from there CMOs can report to the CEO and CFO not just on campaign metrics, like cost per click, but on their actual contribution to revenue. As SVP and CMO Jeanne Hopkins puts it, “I can guarantee you that there is not a CEO on the planet that cares [about campaign metrics]. What they want to know is: How much revenue have you brought in?”
Rationalizing the marketing spend requires marketers to adopt data-driven approaches and programs. Some old school marketers, however, have been slow to embrace these new opportunities. So in 2007 7% of CFOs said that they were satisfied with the ability of marketing to report ROI; today that number has increased to 12%. Progress, but too, too slow.
CFOs, I feel your pain. You want the numbers. So give them the numbers, CMOs.
Did you find this post useful? You’ll find dozens of actionable strategies and tactics in my interviews with 10 sales and marketing leaders.