Finance and marketing are often seen as opposing forces in a business.
Marketing wants to spend money, while finance wants to save it.
Marketing wants to be active everywhere their customers are, but finance wants to limit activity to what brings a direct return on their investment.
A common gripe of marketing is that finance won’t unlock the budget for them to do what they believe is right – like long-term brand building.
This old-school mindset is no longer fit for purpose, and it damages a brand’s ability to stay relevant and grow sustainably. What’s needed is a new understanding between these two departments and a collaboration rooted in shared interests.
Seeing finance and marketing as true business partners requires an open mind, a lot of conversation and an unflinching look at the data. However, taking the time to put this foundation in place is an essential step that can position your company for growth.
I sat down with our Finance Director, Serena Humphrey, to find out how to build bridges between marketing and finance.
Finding common ground
Both sides need to be willing to compromise to find common ground and shared interests. Finance needs to take an active role in understanding what marketing does and why they believe it’s the right thing to do.
“I make it my business to know what marketing is doing. I can’t just fuss over the fact that revenue is low and the margins are squeezed, I need to get involved further upstream to help the business figure out who we’re approaching and how we’re going about it.
The profit and loss is the end of the road and finance needs to be at the beginning of the road.”
And marketing needs to increase their commercial awareness by understanding the numbers that truly matter to the business and how their activity fits in.
Develop an understanding of how your company operates, how your products and services are delivered, how they’re priced, how you sell them and how you manage expenditures.
The ultimate goal for both teams is to link the daily marketing activity right through to the profit and cash flow of the business, connecting what marketing does to the filling of the sales pipeline (in a B2B context) or attracting new customers and getting existing ones to buy more frequently, is how to link the two.
One of the first places to start is with what you’re measuring.
Measuring what matters
Was it worth it?
That’s the fundamental question finance will be asking when they look at the marketing activity of the previous year when they’re about to set budgets for the next.
Marketing can be incredibly difficult to measure in a way that is tied to the bottom line. Not just at the top of the funnel with brand awareness, consideration and perception, but also at the middle of the funnel when driving trial and preference.
First thing to note: when we’re measuring the effectiveness of our activity, we’re interested in profit, not revenue. There are a host of costs associated with selling goods and services that we want to strip out to get a proper picture of what marketing is contributing.
The second thing to note: the terms ROI (return on investment) and ROMI (return on marketing investment) are always financial ratios.
Marketers will often use the term to describe response metrics like awareness, engagement, press coverage and downloads, but this is nonsense and should stop. I’ve been guilty of this myself, but if finance is going to take marketing seriously, we need to use these terms appropriately.
Digital marketing has provided a wealth of data points, but they aren’t always that useful from a commercial perspective. Vanity metrics like social media likes and engagement may not mean much to your business.
The right metrics will vary depending on your industry, how you sell, what the customer journey looks like and what you’re able to measure. Sitting down with finance and working out the value of your specific marketing activity is a key part in building trust and a collaborative partnership.
Serena also says:
“Finance wants to know that marketing is an investment, not an overhead because that changes everything. If it’s an investment and we can prove that it works, we’ll probably want to do more of it.”
Work together to build a full-funnel mindset that tracks upper-funnel activities appropriately and lower-funnel activities in a way that’s tied more firmly to sales and profit.
Over time you should see the lower-funnel activities get more efficient, cost less and convert faster, as the upper-funnel activity primes those sales.
Which brings us nicely to our next point.
Investing in today and tomorrow
Research coming out of the Ehrenberg-Bass Institute and the LinkedIn B2B Institute shows that up to 95% of potential customers are not in-market for your product right now.
Brands will often spend the majority of their advertising budget trying to convert the 5% who are ready to buy – completely missing the opportunity to create future demand with the wider customer base.
This is what is known as the 95-5 rule.
If we can truly grasp that concept, we’re able to understand that marketing works across two time scales.
Long-term brand building activity is about laying the foundations for tomorrow’s demand with the 95% of the market who aren’t ready to buy right now. It’s about who you are as a brand and what you stand for in the minds of your broad customer base.
It works over a longer period of time – typically at least six months, with bigger impacts being seen in years two and three.
It’s human-focused and emotive, using storytelling to bring the values of the brand to life. It’s also about building positive perceptions of the brand and creating memory structures in the brain that link your brand to a buying situation.
Short-term, tactical sales activation is about capturing today’s demand: the 5% of the market ready to buy. It’s about the solutions you offer to specific customers and it of course works in the short term – today, this week, this month.
It’s often product-led and rational, using data to drive the targeting and messaging choices, prioritising action – leads, sales, sign ups, whatever a conversion is for the brand – at the most efficient cost.
As mentioned in the introduction, when the idea of long-term brand building is raised, marketing generally points the finger at finance as being unwilling to invest because they need to see a return faster.
Serena believes the resistance in those situations isn’t coming from finance. It will likely be the board concerned with quarterly returns for shareholders or themselves.
“Short-termism that only looks at the next quarter is a classic tension in companies concerned with bonuses,” Serena told me. “But Marketing and Finance can be partners in an effort to convince the Board to invest in longer term thinking.”
This goes right back to the 95-5 rule.
“If your company isn’t doing brand building and your competitors are, guess who the customer is going to think about next time they’re ready to buy? It won’t be you because you didn’t spend six months or a year building trust and familiarity with them.”
Marketers who stay current on the latest research coming out of the industry can take this information to finance and together they can educate senior management and the Board in what’s truly important.
Getting the marketing budgets right
The rule of thumb is that companies should be investing between 5% and 10% of their revenue on marketing.
It’s often around the same amount of money year after year and, while it never feels like enough for marketers, it can be an incredibly inefficient way to allocate money.
Anyone who’s worked in business long enough knows that the closer you get to the end of the financial year, the more you’ll hear of people trying to spend their leftover money so they don’t get less the next year.
That’s something Serena believes is ill-considered and a waste of money. She prefers zero-based budgeting, where you start from a zero base and make a case for the budget you need based on the returns you believe your activity will get the business.
“Everything should start from the strategy. Strategy should address the business need and then you figure out what it will cost to deliver the strategy.
Zero-based budgeting makes you leaner and smarter because you have to really think through and justify what you need the money for. It makes you accountable for your results.”
While it can take more effort to set up zero-based budgeting, the accountability can result in marketing being taken more seriously in the organisation. Being upfront and transparent with the business means you can ask for an experimentation budget alongside the activity you know will drive results.
As we’ve seen, the key to finance and marketing working better together is to build real relationships, to view each other as business partners with common goals.
The best way to do that is to start talking to each other. Set up a recurring meeting monthly or even bi-weekly if your business is changing rapidly.
Here are a few thought-starters for what you can cover in that meeting:
- Marketing can present their marketing strategy so finance can see what activity is happening, who the activity is targeting and what the metrics of success are.
- Finance can present their key financial reports and the commercial challenges the business is facing. They can point out where they think marketing activity can contribute.
- Review your measurement dashboards together to find connections and crossover. Push past the vanity metrics and figure out how to connect marketing activity to the bottom line and if you’re struggling, loop someone in from a data and insights team to help put the right measurement framework in place.
- Marketing can share the latest industry knowledge coming out of Ehrenberg-Bass, LinkedIn’s B2B Institute, IPA, WARC, Les Binet, Peter Field and other marketing institutions and thought leaders.
- Work on a joined up report to senior management and the board that demonstrates the value of marketing and connects it to the profitability of the company.
This would all be sensible guidance at any time, but we’re facing a challenging economic environment right now and budgets are being scrutinised. Marketing needs to prove the value of their work now more than ever and the key to doing that is a stronger relationship with finance.
Don’t just take my word for it. Here’s Serena to wrap us up:
“Marketing is the single most important driver in business and if you can connect those two ends really well, it can be very powerful.”
Want help with creating a marketing strategy that connects to your bottom line? Join the free webinar Julie is hosting with our paid media team, discussing whether you should continue investing in your advertising during a recession, and how you can prove its value to the whole board.