Written by Will Novosedlik
Chartered marketer Peter Rodriguez calls the conversations CMOs have with CFOs the best you can have as a marketer. To get the resources they need, marketers must engage finance in the analysis of their sales data, total marketing budget and marketing performance to uncover historical correlations between marketing investment, revenue growth and optimal budget allocation.
But CMOs and CFOs come to those conversations speaking different languages. While finance can help analyze and digest the numbers, marketing is responsible for identifying the metrics and modelling customer behaviour. Marketing owns the customer; finance owns the balance sheet.
Empathy Inc., in partnership with Leger market research, CFO Centre, and AMA Toronto, recently released a study looking at the mindsets and relationship between CMOs and CFOs, particularly around budgets. This is the second annual study of its kind.
The disruptions of the last two years have strained that relationship. The pandemic has created more uncertainty than ever, making the allocation of resources towards marketing increasingly challenging. Inflationary pressure is shrinking wallets and squeezing marketing budgets. According to the study, marketers are less confident in their ability to look ahead, which erodes the CFO’s trust.
The disruption is also affecting the time allocated to budgeting. Previously, most CMOs began planning four to six months before end of fiscal, while CFOs joined in at about the three-month mark. Now, 55% of CMOs say they aren’t starting to budget until two to three months before end of fiscal and only 10% of CFOs before the three-month mark.
Historically, the tension between short-term and long-term investments has been at the core of CMO/CFO conversations. For the CFO, it comes down to a question of ROI. Marketers seeking to balance short- versus long-term investments must build a case based on insights that are driving demand as the result of a timed investment, along with a P&L that shows a pro forma of three to five years out. The two sides agree that insights and research are critical to making good budget decisions.
Despite all the uncertainty, the study reports that 73% of marketers believe they will increase budgets in the next fiscal year, and 86% of CFOs agree.
Create a winning budget
The report identifies five key prerequisites for getting budgets approved in 2023.
- Start the collaborative budgeting process earlier, preferably four to six months out.
- Forecasting during a period of uncertainty, like the one we’re currently in, requires finance and marketing to leverage each other’s strengths. Marketing will gain from finance’s forecasting capabilities, and finance can take advantage of marketing’s proximity to the customer.
- It’s more important than ever to reduce the tension between short- and long-term thinking. The pressure to pull back on brand spend and dial up on pricing and promotion is always sharpest in a recession. So it’s critical for marketers to show finance the long-term effects of reduced investment. If, for instance, you can show your CFO how much reducing brand awareness will diminish your place in the consideration set over the next three years, they may agree that long-term spending cuts shouldn’t be so deep.
- Two years ago, this report suggested investing in resources to extract insights from the market (via market research) and the competition (competitive research), bolstered by available data in your organization. Today, it explicitly recommends that you divest from data infrastructure and invest in insights and research. As Level5 Strategy founder David Kincaid has said, if you have a dollar, don’t spend it on measurement; instead, use it on understanding how the consumer’s unmet needs are changing.
- It is now more important than ever that marketers get in alignment with finance about what the KPIs are in the future. Finance is still unsure whether you have the right information to determine your success.