Editorial
The Gist
- Finance literacy. Marketers must gain financial literacy to justify their budget and impact.
- CFO partnership. Aligning with the CFO can help validate and secure the marketing budget.
- Data integration. Integrating marketing data is essential for demonstrating aggregate ROI.
As the economy continues on shaky ground, marketers have seen their budgets drop nearly 15% over the past year, continuing a downward trend that began with COVID-19 and has persisted over the last four years. While CMOs grapple with the “era of less,” the perception in the boardroom continues to be that marketing is discretionary.
When times get tough, boards instinctively know they can’t cut sales because that directly impacts revenue. But marketing is somehow implicitly disposable, despite the direct causal connection between brand awareness, marketing ROI, lead generation and valid sales deals.
This short-sighted approach to cut marketing might save money right now, but it just pushes the problem off until the next quarter. If the marketing funnel takes 45-90 days and the sales cycle another 90-180 days, defunding marketing means essentially killing your lead gen for the following year.
The reason for this knee jerk reaction is largely because, by their own admission, 43% of CMOs have a hard time proving marketing ROI and another 31% struggle to justify their budgets. They simply can’t articulate their value in the common currency of the organization — dollars and cents and revenue impact — so it’s not perceived as part of the revenue funnel, and thus not important to the organization’s future success.
Related Article: Are Lead Generation Days Over for B2B Marketers?
Why Materiality Matters
Because of that disconnect, marketing is not considered “financially material” to the organization, and that distinction (or lack thereof) has serious implications. More than just an adjective to describe something that’s important, materiality is a specific accounting distinction that designates an item or business function as having an impact on board decision-making and the company’s financial statements. Something that is material is significant enough to warrant reporting to the board of directors and external investors.
What specifically constitutes materiality varies from company to company, but understanding this concept is essential to justify marketing to the organization. If marketing’s work only impacts 0.1% of revenue, it’s not material, so you’ll only get 0.1% of the board’s attention.
That means the key to demonstrating marketing’s value (and defining budget) lies in validating and maximizing marketing’s materiality. In order to do that, marketers need to earn themselves a seat at the board table by learning to speak the language of business.
Related Article: Dorm Room Decor and Marketing ROI: Prepare for Unexpected
5 Steps to Prove Marketing ROI
Here are five steps CMOs must take to justify marketing ROI and prove materiality of the marketing function for the organization:
1. Become Finance Literate
Financial literacy is typically not part of the marketing curriculum, even in some MBA programs. Therefore, most marketers don’t know how to read a balance sheet or interpret financial statements or annual reports. Overcome this disadvantage by enrolling in a finance education program at a local university or online, or a financial bootcamp for marketers that can teach you the language of marketing, key concepts and board functions and duties to earn your place at the table.
2. Bond With the CFO
The CFO can be a strong ally in justifying marketing budget — when they have the right ammunition. Align yourself with the CFO by demonstrating you understand the need for revenue impact and designing a plan that moves the marketing ROI needle. If you have the CFO on your side, they can help carry water for marketing by endorsing your plan as fiscally valid and material to the organization.
3. Stop Doing Marketing Math
Marketers often rely on overly simple funnel calculations: If we need 1,500 unique website visitors to generate four closed deals, that means to close eight deals, we need 3,000 website visitors, right? Except it’s not that simple, and the math falls apart quickly at scale. What if your funnel requires 10,000 visitors to generate four deals? Can you even generate the 20,000 visitors it would (theoretically) take in the given period to win eight deals?
Instead, focus on identifying the customer journey patterns and behaviors that attract quality over quantity. The goal is more leads that are more likely to convert, not just more leads.
4. Integrate Data Sources
One of the reasons marketing struggles to validate impact is because its data is siloed. Marketing tracks KPIs across multiple channels (advertising, social, trade shows, etc.), but they’re all tracked separately so it’s impossible to demonstrate aggregate marketing.
Of course, we know that it’s rarely just one impression that convinces someone to buy — it’s the combination of engagement from advertising to media placement from website sessions to webinar attendance and more. Implementing a data lake can bring all the data together for deeper, more accurate analysis.
5. Connect Customer Journeys and Repeat
Once you have all the data together, then it’s time to connect the dots. Look for the patterns in the customer journey that drive the most success and adapt your plan to maximize those channels, campaigns and activities. While you don’t want to put all of your eggs in one basket (go all-in on trade shows, for example, at the expense of all content marketing), identifying what works to close deals and doing more of it is essential for maximizing ROI.
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In an era where it’s no longer good enough to use likes, clicks, reputation and audience share as marketing metrics, CMOs have to figure out how to pull deals forward faster, lower the average time to close and increase the volume of deals likely to close in order to impact revenue. And as we know, if you’re not measuring it, you can’t change it.
Integrating data, tracking the entire customer journey and accurately measuring impact takes far more than a spreadsheet. In order to make marketing material to the organization — to get the board’s attention and piece of the budget — CMOs must learn the lingo and implement modern tools that deliver deeper analysis that speaks the language of business.
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