I recently hosted our latest invite-only CMO Roundtable in Seattle. We partnered with Allocadia and our topic focused on Finance and Marketing Alignment with the CFO and CMO.

Chris Pick, CMO from Apptio and Samantha Bannister, VP of Finance and Operations from Allocadia were the panelists who provided valuable insights.  The CFO and CMO relationship doesn’t get the same tradeshow airplay and blog coverage as sales alignment. But the Finance and Marketing partnership is likely the most important to build and maintain.  Bannister and Pick shared powerful insights that can help marketing leaders with any size organization and different growth goals.

Here are detailed takeaways:

Success starts with planning. A strong CMO and CFO partnership is built on planning, communication, and results.  Planning is the starting point. Many CMOs and marketing VPs start their planning process late and this forces reactive decisions without data models. Pick and his team at Apptio begin planning in September. This is hugely important because they get a head start on data analysis, which ultimately helps build predictability in the business.

A strong plan backed with a business case and credible data analysis helps the CFO with decisions and allocations. Too many companies place marketing budget decisions with CFOs without data and analysis. (In today’s B2B marketing world, this is unacceptable.) As Bannister says, “make it easy for a CFO to say yes.”  The quality of the plan and the expectations are what gets the CMO and CFO through good and bad times.  Planning should align tightly with the strategic objectives and goals.

Standardize on what you are measuring and ensure the entire organization is aligned on nomenclature.  Chris Pick states that creating a standard model immediately removes friction because all executives, including the CFO, understand what is measured, what it means, and why.  Like many successful B2B companies, Apptio uses the SiriusDecisions Demand Waterfall for their taxonomy and analysis models. Without a standard model, chaos and drama ensue.

Using a model like the SiriusDecisions Demand Waterfall also helps marketers plan the stages where the budget will be used, how, and the intended results.  This detail is invaluable for the marketing team and the CFO to see where money was spent and the intended results against the goals.

On marketing operations, Pick recommends that all CMOs get a “great” marketing operations person.  He pointed to how his own marketing operations director not only keeps Apptio’s complex tech stack running but provides detailed analysis that measures the health of the business. A highly skilled marketing ops resource provides the data and analysis that strengthens the CMO-CFO partnership.

Focusing only on marketing revenue contribution is a career limiting move for a CMO. Yes, you read that correctly. CMOs should focus on driving overall pipeline and revenue, regardless of source or who gets credit.  (Admittedly, many CEOs and CFOs struggle with this as they want clear lines on marketing attribution as if they have a sales quota.) Attribution is valuable to measure in order to identify performance and efficiencies. But it should not be the CMO’s only revenue performance focus.

Create Customer Acquisition Cost Ratios. This will vary based on stage and maturity. CAC ratios provide guardrails for marketers to measure overall plan and budget efficiencies.  If CAC ratios are climbing then it’s important to analyze why. Are opportunity creation and win rates dropping? Are planned channels not fueling the pipeline as planned? Are marketing staff performing as needed? All of these factors can have a significant impact on CAC. 70-80% of marketing costs are people. That leaves a smaller bucket of financial resources for programs and projects which help drive results against the plan. People, projects, and programs all need close management in order to maintain optimal CAC ratios.

Marketing spend as a percentage of revenue. Businesses with aggressive growth goals can have marketing spending levels reach 15% or more of revenues. Marketing budgets around 10% of revenues are common as businesses become established and increase efficiencies.

Understand budget accruals and reconciliation. Quarterly accruals are critical because they track how the budget money was utilized within a specific time period according to plan.  Accruals that run over or under budget are bad, obviously, but can be easy targets to miss.  It’s critical that CMOs have a strong financial budget management process and tools beyond static spreadsheets. Also, CMOs can run into significant budget management issues when flexible spending isn’t reconciled within a specific time period.  Think about travel expenses.  Budgets should include T&E but it can easily wreck a budget when actual expenses are accrued and reconciled. Many CMOs are measured and compensated on their actual budget spend. Also, public companies share their operating plan of record. If expenses exceed the plan, bad things happen such as missed bonuses and budget cuts.

As Allocadia’s VP of Finance, Samantha Bannister works very closely with her marketing team at Allocadia.  She takes a simple approach to help her team provide the financial resources to grow the business.  “Good decisions are easy to make” and based on strong planning backed by data models and analysis.  She and her Allocadia marketing team also use a common language in the planning and analysis, and they measure results against a standardized model.

Plan for success and prepare for tough decisions. It’s often necessary to pull funds away.  CFOs don’t enjoy these conversations any more than CMOs do. Marketers can remove the pain by actively measuring performance against plans and goals. Long term marketing programs can underperform against goals when they start. It’s worth looking at why with data analysis. Bannister says it’s common to decide to keep powering through, even though the initial results are down. Again, this comes down to the initial plan and goals.  This also means clearly understanding the impact from budget cuts.  Data models and analytical skills are critical to evaluating and understanding all of the scenarios.

Measuring revenue performance results and socializing broadly. Apptio measures strategic KPIs and marketing performance metrics in 5 big major categories. They include:

  1. Reach – what is the scope of all pipeline development programs to fuel the pipeline.
  2. Conversions – how efficient is full funnel performance with conversions at each of the standard stages, according to the plan.
  3. Pipeline Value – are opportunities created at the rate necessary to meet overall sales goals.
  4. Velocity – How fast are opportunities created, deals won, and at what selling price.
  5. Return – What is the CAC ratio and marketing ROI based on cost per lead, cost per opportunity, and cost per deal. What is overall marketing spend based on revenues?

Too many CMOs use tactical metrics to share with the CFO and CEO under the impression they provide a strategic picture on pipeline health and revenue performance. Strategic KPIs provide a better view into the health of the business and what is coming over the next quarter or two.  Tactical performance alone doesn’t do that.

Ultimately, Chris Pick states that marketing should never have to justify spend as long as long as the CMO has a well-developed and heavily socialized marketing plan. Once a marketing plan is locked and socialized with all execs, marketing needs the agility to achieve goals and address changes.

The CMO partnership with a CFO is likely one of the most important for executives to build and manage. The resources for success and growth are allocated and measured by the CFO. The CMO is accountable for generating value and results with the budget resources and communicating progress with intelligent analysis. Close communication, collaboration, and performance analysis strengthen the relationship and help the business grow.