Metrics and measurement are crucial to proving value but they are also important for making a proper marcom diagnosis
The chief financial officer (CFO) is the single biggest skeptic marketing and communications leaders face when it comes to results. That’s according to a survey of 378 “senior marketing leaders” by Gartner which was published recently.
CFOs edged out CEOs by one percentage point and topped the head of sales by nine percentage points. It’s a remarkable statistic considering alignment between sales and marketing – and comms – has been one of the stickiest universal challenges for decades.
There are other recent studies with similar findings too.
For example, a joint survey by the CMO Counsel and the consulting firm KPMG, as reported by Kendra Barnett for The Drum, found just one in five (20%) of CMOs say “they have a truly collaborative relationship with their CFOs.” Further, another 25% classify “their relationship with the finance team” as “indifferent.”
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Why do marketing and finance need alignment?
Why do marcom folks need alignment with the CFO?
If it’s not obvious, it’s because the CFO controls the corporate purse strings. Marketing, at least in tech, has been chronically underfunded for the last 18-24 months. “Anemic” is the word Gartner has previously used to characterize marketing budgets.
Yes, the CFO probably has a niece who’s taking a 101-level college marketing class – and she has a lot of ideas the CFO would like to share with you. That sort of thing just comes with the territory. Instead of avoiding these well-intended side-bar conversations, perhaps marketing leaders should embrace them.
“I talk to my CFO probably every other day,” said Dow Jones CMO Sherry Weiss at an event hosted by The Drum and included in the article cited above. “You have to stay very close.”
Dow Jones publishes marquee business titles including The Wall Street Journal, Barron’s, Investor’s Business Daily and MarketWatch, among others.
To paraphrase her words, marketing leaders need to focus on building relationships with CFOs. That relationship is a conduit into the marketing world for CFOs – so they can understand what it is your team is doing and why. They need to understand how their investment in marketing is connected to business results.
A lack of marketing measurement expertise?
Marketers don’t seem to be equipped to measure marketing, according to a piece by Ayaz Nanji for MarketingProfs. He reported on a survey of 357 marketing decision-makers by Ascend2 which found the top challenge marketers struggle with in measurement is “a lack of expertise.”
In this day and age, I’m inclined to interpret a lack of expertise as a lack of effort. This is because there are so many free and educational resources available on measurement. Further, measurement has long been the Achilles heel of marketing and communications. So, we know it’s an important issue that needs to be addressed.
What’s more, is that the CFO and finance team can help. They spend a lot of their time evaluating costs and benefits across the company. Rather than get defensive at the end of the quarter when results are being discussed, bring it up in a one-to-one conversation in the beginning.
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Starter ideas for a marketing measurement with the OER framework
A sound approach to measurement is to focus on three key areas: output, engagement and results (OER). Start simple and be thoughtful about what you are going to measure.
1. Output
Output is a measure of effort that goes into marketing. I tend to think of things produced or published: blog posts, ebooks and webinars for example.
Effort is work and you absolutely need to have a sense of the amount of effort you put into marketing. Marketing, especially in B2B with its long sales cycles, is going to take a while to produce measurable results.
As Weiss noted, “In the beginning, it’s hard to measure, so you have to set expectations around, ‘Okay, we’re not going to know if this works until X amount of time.’”
Effort is the entrée to that conversation.
2. Engagement
I think of engagement as anything in between effort and sales deals that closed. If it’s not an effort or a signature on a contract, then it’s probably a measure of engagement.
There is a wide swath of metrics and measures that could potentially fit into this section. Pick the ones that matter most and swap out those that don’t make sense.
I tend to like the fundamentals:
- Metrics from web analytics (traffic, source, landing page and ToP);
- Backlinks (undervalued and misunderstood in PR);
- Registration, downloads and demos;
- Email subscribers; and
- Leads, marketing qualified leads (MQL) and marketing source pipeline.
For the last bullet, you can call it whatever you want so long as marketing and sales are aligned on whatever the constitution. These terms are interchangeable. However, I recommend avoiding having both MQLs and SQLs (sales qualified lead) because having both structurally puts sales and marketing at odds – and before you’ve even begun!
3. Results
Results are easily defined as a business outcome. For most B2B marketing organizations, revenue is the primary measure of success. That includes both new customers and retention through customer marketing.
In politics, or non-governmental organizations (NGO) a business outcome might be votes or legislation that is codified into law. In non-profits, donations are the primary measure of marketing success, though it is important not to lose sight of the fundamental purpose (such as improving lives) of a non-profit.
In the early stages of B2B marketing, results are hard to come by. You must diligently collect anecdotal data. For example, I had a client share on a call that a contributed article I wrote and placed in the CEO’s name (interviewed him and he edited – so it was his ideas not mine) was directly attributed to a $160,000 deal they closed.
I learned about this because measurement is a part of my monthly calls with clients. Get in the habit of asking everyone outside the company you speak with this question: “How did you hear about us?” (This is also a good optional survey question to add to your gated content).
Over time, you’ll be able to look at data and make assessments. For example, at the end of the year, you can compare the email subscribers to your newsletter with the deals closed. I did this once with subscribers to a B2B blog and could prove it was a touchpoint during a sales cycle for a SaaS product with an average selling price of $1.3 million.
Three important points about that result.
First, that was the third year of building that blog, so it’s not fast and it’s not quick, but as Newton said, objects in motion tend to stay in motion.
Second, results in B2B are team effort: it’s a combination of things that influence an outcome – we are looking to understand what we definitively say influences sales deals.
Third, in a B2C world, you can (theoretically) tally purchases from a single email. By contrast in B2B, a single email may not even get opened, let alone drive revenue.
What about CAC, LTV and all those SaaS metrics?
In the survey results about marketing measurement and CFO, Gartner says tech marketers – especially those in subscription businesses like SaaS – need to understand basic financial metrics.
This means metrics such as:
- Customer Acquisition Cost (CAC);
- Customer Lifetime Value (LTV); and
- Cost Per Acquisition (CPA).
“CMOs and other senior marketing leaders who incorporated two or more of these ‘high complexity’ metric types were up to 1.8 times more likely to prove value and get credit than those who used none of them, and 1.4 times more likely than those who incorporated just one of them,” according to Gartner analyst Joseph Enever.
However, these all have nuances. For example, CAC can be calculated overall and by channel. Yet doing a by-channel analysis can get executives fixated on a channel and miss the influence of other activities. That’s bad because few things in B2B marketing happen in isolation – integrated marketing is paramount.
Metrics like return-on-ad-spend (ROAS) have a similar effect. ROAS gets the C-suite focused on advertising channels. As they do, they lose visibility about the impact of brand, PR or even that very expensive subscription to an analyst firm like Gartner.
For example, how do those two monthly analyst-inquires with the Gartner marketing analysts factor into an ROAS equation? They don’t but they might have an impact, nonetheless. And the impact that gets lost in the microfocus on ad spend (it’s the “marketing” department, not the “advertising” department).
As a result, those things can get cut when budget clawbacks strike at the end of the second quarter. Then ROAS suddenly tanks too, and nobody understands why. The answer is that these things are linked but not in a way that is readily surfaced in an equation.
Established metrics can help make a marketing diagnosis
Similarly, Gartner excludes metrics like Gross Revenue Retention (GRR) and Net Revenue Retention (NRR), yet these are important for making a proper marketing diagnosis. For example, NRR includes cross-selling and upselling, and can mask customer churn, which is something GRR will surface.
So what? If marketing is focused on net-new customer acquisition, but you’re churning customers, then you are, by definition, a cost center. Subscription business models are only successful if you can retain customers. The question is, why are customers churning? Is it the product? Lack of support? Fatigue with “customer success” titles focused on selling rather than success?
Or maybe no one has been communicating with customers. Forrester Research says 73% of B2B revenue comes from existing customers and just 27% comes from net-new. Perhaps marketing, in this example, should prioritize customer marketing over net-new acquisition.
The ability to draw these conclusions in a split-second from a slide presented in a board meeting – can make a big difference in the marketing budget. More importantly, a proper diagnosis ensures marketing is focused on the right problems and is leading the company’s growth efforts – not reacting to requests.
Suddenly, you’re a growth driver and not a cost center.
But if you don’t know the metrics, you can’t make that observation. I know all these terms can be intimidating if they are unfamiliar, but I’d offer this: they are not as complicated as they sound, and you can grasp them; educating yourself is the path to conquering that sense of uneasiness some of you might feel when you see all these acronyms.
A little effort goes a long way
You don’t need a PhD in mathematics to do a credible job of measuring marketing and communications. You do need a framework and a little effort. Effort means being disciplined – as a team – and carving out time for measurement. A good start, as this post suggests, is to start a conversation with your peers in finance.
As for the CFO’s niece’s idea…chalk it up to a marketing experiment but be sure to ask the CFO how that idea could be measured if you do a pilot test.
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PR measurement. The 10 Most Common Ways Comms Pros are Measuring PR
Image credits: Flickr (CC BY-SA 2.0) and respective studies
