Everyone’s talking about how business needs to break down internal departmental silos. Why it’s important for the Sales department and the Marketing department to play nicely with each other. Why other departments such as Customer Services, Support, and even R&D should be in considered in the mix too.
Then there’s the Finance department. And that’s where — more often than not — businesses of all sizes run into a brick wall. How come? Because there seems to be a basic communication disconnect between Finance and Marketing. This is fundamentally based around the different goals each department has, as well as language each discipline uses.
On the one hand, Marketing brings insights based on understanding what customers perceive as the value the business brings to them, and which they’re prepared to pay for. Finance, on the other hand, brings efficiency in the operations of the business with ways to deliver that customer value at the lowest possible cost.
The Problem: Contradictory Approaches To Business
This is where the methodology and processes of Finance and Marketing significantly diverge. Left to its own devices Marketing typically over-promises and under-delivers, pushing-up business costs against a return that doesn’t sufficiently justify its position. Taking to extremes the operational costs end up being too high, so the organization goes out of business.
Finance, in contrast, aims to engineer business cost structure from an assumption that “all costs are bad” and should be avoided, ultimately under-delivering on the customer value component. The result of reducing costs by too much is the value element is eroded. The customer no longer sees the product or service as being worth the purchase price, so the business no longer becomes sustainable.
A different approach, but the same end result.
The language of Finance is the language of the business in general. Based upon the underlying strategic goals and measurements set out by the CEO, part of the job of the CFO is to communicate information in strictly ‘business’ terms. It’s where you hear about things like Balance Sheets, ROI, cashflow, and EBITDA.
Clearly, Marketing’s message to the C-Suite/stakeholders should be seen as equally important. However since Marketing uses a different set of language terms unique to its own environment, much of what is said flies straight over the head of the average CFO. Even worse: CMOs sometimes use Finance-derived terminology in different ways to how CFOs would. The result is confusion, ambiguity, and even outright distrust.
Perhaps it’s because Finance sees itself as being driven from the head, while the classical view of Marketing is that it’s primarily driven from the heart. As a result, because there’s not a ‘one-size-fits-all’ endlessly-repeatable model for delivering marketing results, finance people get uncomfortable.
It’s a bit like how some in the medical professions have issues with the placebo effect. It’s not that doctors don’t believe the placebo effect works, because there’s plenty of authoritative evidence showing it does. It’s that they have no idea how and why it works. In the same way, Finance has an ingrained discomfort with marketing not because they think it doesn’t bring results, but because they can’t make a pivot table out of it.
Finance & Marketing: Why Can’t We Live Together?
So is the underlying issue primarily one of language? Partly, yes. The choice of language is certainly one part of the problem. But the bigger issue is for marketers to have a better understanding of the finance world. They need to recognize how Marketing’s thought processes and measurements are different to what Finance people understand. Moreover they need to be aware of the need to reframe information and reporting to be more attuned and receptive to a Finance-centric mindset.
Let me give you an example. Supposing the Marketing department designs and implements a successful content marketing campaign. They put together a range of communications collateral — articles, eBooks, podcasts, videos — supported by a targeted social media and email initiative addressing a handful of carefully-researched audience segments.
The result is what Marketing deems to be a resounding success. Pageview metrics for the articles are through the roof. There are thousands of eBook downloads, millions of video views, and gazillions of ‘likes’ and ‘shares’ on social media. These translate into increased site visits, reduced bounce rates, and even a higher SEO ranking. The Marketing department are ecstatic to report how all this activity will result in increased audience mindshare, and ultimately an increased market share for the business. Happy days, right?
Except the CFO hasn’t got a clue what all of this actually means, in real terms.
What Finance is looking for is how all of this translates into what rocks their world: cashflow for the business. Sure, they’re just as happy about all the extra traffic and visibility but, from where they’re sitting, there doesn’t seem to be anything tangible to justify the popping of champagne corks.
Business Departments Separated By A Common Language
What the CMO forgot to factor in to the equation was something everymarketer needs to consider above everything else: Know Your Audience. To get the CFO more enthusiastic they need to report the results of their efforts in finance terms. What the CFO wants to hear is something along the lines of “Based on our experience with similar programs in the past, we conclude that if the business spends $X on this marketing initiative we will increase revenue by Y% over the course of Z timeframe.”
Now we’ve changed things around and presented things in a way where Finance can get excited, we’ve got something the CFO can work with.
Of course, Finance is going to want to know the details — process, metrics, implementation, and so on. But Marketing already has all of that. First we show how we decide on customer segmentation from conducting research, interviews, data-mining, and so forth. Then we show how the segmentation work leads us to design a customer value proposition, then we define channels — social, advertising, content marketing, email, pricing, distribution, whatever.
We educate the Finance team on how we see these decisions and actions will influence customer buying decisions, and how using metrics such as brand mindshare and perception, recall, and feedback can be used to measure effectiveness within a specific cohort.
Of course efforts to influence customer thought processes isn’t enough — we need to convert those thoughts into actions. Which is why Marketing measures factors such as site visits, time spent per visit, bounce rates, email clickthroughs, landing pages and 101 other metrics that are overlaid with purchase data to validate what and how Marketing-initiated efforts have had on buying behavior.
Once the purchase changes are measured, we’re a hop and a skip away from calculating the true cost of those purchases and acquiring those customers. Then it’s a simple case of comparing the cost increase to the cost of the marketing programs themselves.
Why Marketing Needs To Learn The Language Of Finance
We’ve almost got the CFO on our side. We’re not quite there yet, but we’re on the home straight.
What’s still missing is pivoting this (currently) marketing-centric data view into something easy to digest for the Finance department. This may look like a simple table showing the number of newly-acquired customers against the cost of acquiring them, versus the status-quo. Or it may be breaking down the Customer Lifetime Value of newly-onboarded customers versus existing ones. It all depends on the particular business concerned, and the stated commercial priorities of the organization as a whole.
By connecting marketing efforts to financial results we’ve not only presented the marketing plan and results as a business use case. We’ve presented our work and the report in ways that Finance can understand. The CFO has a new-found respect and appreciation for the work of the marketing team and is more likely to fight for them when budgets are being set, since they now have a working understanding of what goes on over yonder.
Marketing Is Everyone’s Job
Marketing isn’t just the job of the Marketing department. It’s the job of the entire business. The more that Marketing and Finance can work together, adapting their local datasets and verbiage to each others’ world, the easier it becomes for the organization to make validated business decisions.
Originally published at kexino.com