Part 1 of this article looked at best practices for determining optimal marketing spending levels. In part 2, we look at how marketing leaders need to align with the CEO and CFO on marketing spending priorities.
To help answer this question, I’ve turned to marketing strategy and budget expert Peter Mahoney, CEO of Plannuh, Inc. Peter has decades of experience managing marketing teams, strategy and budgets, including managing a $150M annual budget at Nuance. Peter started Plannuh in 2017 to address the pain and suffering companies experience managing marketing budgets and plans with disconnected tools.
Jeff Loeb: Since the marketing budget is such a large discretionary expense and is so dependent on each company’s specific situation, how should CMOs work with CEOs and executive teams to establish budgets?
Peter Mahoney: At the highest level, there needs to be really tight alignment around what the objectives are. I've been shocked at the lack of alignment between CMOs and CEOs around objectives. The first step in developing a plan and then a budget is to get very clear alignment around objectives. What are the metrics that define success for those objectives, and what are the targets for those metrics? And then what are the milestones along the way that show you are progressing along the plan. Unless you have agreement on these things, it's a non-starter and very easy for a CEO and a CMO to be at cross-purposes. This kind of alignment can be hard to achieve, but it is a critical step.
One of the reasons that this is challenging is that there are often differences of opinion based on time horizons. For instance, when CMOs get input from sales teams on objectives, it is often short-term focused. Marketing has a different planning horizon than sales. Marketing should be thinking out over years, versus sales which should be thinking out predominantly around quarters. Of course, this depends upon the company, and sales teams that sell products with long sales cycles will think in terms of longer time horizons. But in general marketing tends to have a longer planning cycle, very much aligned to the way CEOs should think.
Agreeing on objectives includes balancing short-term and longer-term priorities. What's the relative importance of short-term things like hitting our funnel metrics and pipeline targets which of course are critical. But are there other things that are important like entering a new market, launching new products, creating an increased level of awareness, or launching a new brand. These are also important, so getting alignment around the full set of marketing objectives is a really critical first step.
Jeff Loeb: Let’s move on and talk about best practices for CMOs to work with CFOs. What are some of the key stress points between the CMO and the CFO and how can they be managed?
Peter Mahoney: This is a timely topic as I just saw a Gartner study that talked about the key inhibitors to CMO success. And right at the top of the list was the CFO and the finance organization. 10 years ago, they would have said it was the CIO. And now that's flipped, where the CIO is now looked at as a key enabler to success. Because I think marketers have, in the last decade, developed much deeper and much better relationships with the CIO organization, which is good. This hasn’t happened between CMOs and CFOs yet, and there are a few key things that need to happen to create a strong relationship there. I mentioned earlier the idea of educating the team. I think it's really critical to educate the CFO on how the marketing plan works and effectively communicate the marketing strategy. This is the thesis for how these things should work over-time. This is how am I measuring them so you can understand it. CMOs need to communicate to a CFO in terms they relate to from a financial perspective. If you can help them understand the math, then they can be huge advocates for what you're doing. But they need to understand what you're trying to do. That tends to be really difficult for marketing people who tend to say either “here's a list of stuff that I'm doing”, or “I did this last year, so I'm going to do it this year plus or minus 10%”. And what they don't do is map out their whole model for marketing and communicate it - here's my thesis, here's the strategy and here's how things flow through from awareness to consideration to purchase to resale, etc.
If the CFO understands your math and understands and believes that you have a system to measure the effectiveness and improve that over time, they will be onboard. But if they don't see that you have a deep understanding of those metrics and have a thesis for how it should work, then they're going to say you're not a responsible steward of the budget. That will result in them giving marketing the absolute smallest amount possible because they don’t have trust.
With both the CEO and the CFO, there has to be trust. It's really important to understand that trust comes from a baseline of credibility based on showing your math. And you need to be able to explain what you're doing. Explain a thesis behind it, explain the model behind it, show them how you're measuring it, and show them how you're going to improve it over time. And you need to be comfortable communicating when you were wrong. A marketing plan is never completely right. Good marketers make bets and experiment. So it's important to be able to say “I tried five things. These three worked really well. This one was kind of, Okay. This fifth one was terrible. And we're not going to do that again”. And that's okay because marketing is about testing and running experiments. And not all experiments work the way you think they're going to work.
What some marketers do is they try to obscure failure. But failure should be learning and education, you should be able to get something from it and you should be comfortable communicating that. A big mistake marketers often make is that when they do their quarterly executive review, they'll focus on the five things that really worked. They'll show campaign reports on the top five campaigns that generated say 700% ROI in aggregate. They fail to point out that those campaigns only represented 10% of the overall budget and talk about what happened to the other 90%. That's a huge issue when it comes to establishing trust. It's okay to celebrate the things that are successful, but it's marketing’s job to interpret 100% of the data. Highlight the things that worked and the things that didn't work, and then articulate the things that you're going to do different based on what you've learned.
Right-sizing the marketing budget is critical to company growth and profitability. Many thanks to Peter Mahoney for sharing his insights and experience on right-sizing marketing budgets. If you want to learn more from Peter, check out this article "How COVID-19 is Affecting Marketing Budgets and the Marketing Mix".