CMOs + CFOs: A match made in heaven

Good Morning, Operators!

I hope everyone had a wonderful Thanksgiving & BFCM weekend. I took a brief break due to being heads down for the peak holiday period for the brands that I work with but am back at it today. During BFCM, I saw a ton of really strong consumer shopping behavior - During Black Friday, Shopify reported that sales volume on their platform hit $4.2M per minute!

Today’s content focuses on how CMOs generate stronger business impact through leaning into a partnership with their CFO. Many brands begin annual planning around this time of year (if not sooner) and given that many marketing teams get their resources (aka funding) from finance teams, it’s imperative that a brand’s CMO partners closely with the CFO to align on priorities for the business so that both teams and execute a strong strategy in the following year.

Matchmaking: Understanding Each Other’s Priorities:

A non-exhaustive list of priorities for CFOs & CMOs:

CFO’s Corner: What your CFO gives a F*&!% about

Financial Performance:

• Revenue Growth: How much money are we making? How much is that growing YoY?

• Profitability: How much money is left over from Topline Revenue after accounting for the operating costs of the business?

• Return on Assets: How efficient are we in generating profits from Assets? This covers physical inventory, production infrastructure, and any other assets the business owns

Operating Performance: 

• Inventory Turnover: How fast are we selling out of inventory? Generally high inventory turnover means we’re efficiently managing inventory costs

• Working Capital: This is is a measure of our ability to meet short-term financial obligations - A strong working capital position indicates that a business can pay its bills and invest in growth opportunities

CMO’s Brain Box: What matters to a CMO

Growth:

• Topline Revenue: How much money are we generating from sales of our products?

• Profitability: How much ROI do we see from our marketing investments ? How much $ do we have left over after accounting for COGS (Cost of Goods Sold) and distribution costs?

• Customer Acquisition & Retention: What are our best channels for acquiring new customers ? (both from a volume & efficiency POV) How long do customers stick around / do they come back after making their first purchase? What are the channels & strategies we can use to keep them engaged with us?

Brand Management: 

• Brand Awareness: How can we influence people who’ve never heard of us to become aware of and feel positively about our brand?

• Brand Differentiation: What makes our brand unique/different? Why should potential customers care about what we do?

• Brand Sentiment: Among consumers who are aware of our brand, how do they feel about our brand?

Marketing Technology:

• Marketing Technology: This encompasses both platforms for marketing automation and data driven measurement. How do we choose and utilize the right marketing tech to ensure we acquire & retain customers profitably ? How do we measure the impact and efficiency of different acquisition & retention channels?

• Consumer Insights Tools: This is a unique part of the tech stack that involves tech that helps a brand understand more about their customers and different consumer segments. This includes 3p Audience insights tools such as Brandwatch Consumer Intelligence, Adobe Audience Manager, and other insights tools built by major Ad Tech platforms.

“The Best of Both Worlds” - Anchoring in Intersections:

Contrary to popular belief, CFO’s & CMOs actually have a lot overlap in terms of priority focus areas. One of the biggest mistakes consumer brands make is intentionally siloing these teams so that each has limited (if any) visibility into the workflow & priorities of the other. Financial Performance jumps out as a significant opportunity for increased collaboration.

Financial Performance:

Since both CFOs and CMOs are focused on growing topline revenue & sales volume (and sales volume is typically embedded in a company’s core goals) this represents a significant opportunity for collaboration.

How CMOs & CFOs can work together:  

Setting Specific, Time-Bound Goals in terms that both teams understand:

E.g. “Generate $10M in net profit in Fiscal 2024”

Getting there: From a Marketing POV, this means we need to hit a high enough Topline Revenue # at an efficient enough CAC/ROI from our media investment to ensure we have $10M left over in profit. I’ve provided a very simplified example of how a marketing team might map this out for an eComm brand that sells a single $100 item.

Note: The numbers below aren’t meant to be literal - these can vary significantly across categories & the % figures are expressed as a % of gross revenue.

A CMO might bring the above data to their CFO as part of an ask for resources or funding when doing 2024 planning.

Changing Hats: How to trade POVs in order to guide business-first decision making

CMO in a CFO’s Hat: 

• Consider profitability: If I invest in X, how do I ensure this is a profitable investment? Does it help me sell more volume at a lower efficiency per sale, or does it improve the efficiency while keeping my volume the same?

  • For example, assuming we continue with the example listed above using CAC as our placeholder efficiency metric, case 1) might look like selling 2,000 Units at a $40 CAC, generating $20K in net profit vs case 2), selling 500 units at a $20 CAC, generating $15K in net profit

CFO in a CMO’s hat:

• Consider the impact of improved financial efficiencies driven by marketing: What is the impact on the business if Marketing increases AoV by XX% and decreases CAC by YY% through investment in a piece of software or more efficient media channel?

  • For example, let’s say Marketing allocates a portion of its media spend on an influencer partnership that generates improved efficiency from overall media investment and doubles AoVs & Volume (people buy two items instead of 1) while keeping CAC the same?

    • This could look something like: (assuming the same 20% net margin from our earlier example) 

      

 At a high level, tying marketing investments in media + software to financial outcomes (e.g. profit & loss) and “trading hats” is one way that CFO’s & CMO’s can align on resource allocation & strategy. We can dive a lot deeper into this, particularly when it comes to media measurement & attribution (S/O Cody Plofker for an insightful twitter thread on this from 2022), but I’ll save that for a future newsletter post.

So What? Next Steps & Summary:

If you’re a CMO struggling to get on the same page with your CFO, try out this exercise:

1. Understand the strategic priorities of your CFO & compare them to your own.

2. Align on Specific, Measurable, & Time-Bound goals that are relevant to the priorities of the entire business. Use language & terms that are broadly understood to keep this simple.

3. Trade Hats: How can I frame the value delivery & impact of what I’m proposing from the POV of the priorities of the other side?

That’s all for today, I hope everyone has a great week 🙂 

Cheers,

Zach