CMO Mandate: Measure Revenue or Move On
Cartoon credit: Tom Fishburne, Marketoonist, “CMO of the Month”
“Strategically, marketing has become like cutting water.” This is how Anita Newton, VP of Marketing at Adknowledge, describes the challenge of marketing measurement. New tools, channels and data types, combined with CMOs’ expanding responsibilities, have made marketing performance evaluation more complex…at least from a marketer’s perspective.
Not so for CEOs. For them, marketing effectiveness still lies in ROI – or, more specifically, in sales revenue growth. However, despite the CEO’s preferred marketing metric, many CMOs–as much as 67%–still believe marketing ROI does not require a financial outcome. Surprisingly, 63% of marketers don’t include any financial outcomes when reporting on marketing results to their CEOs.
According to Monitor Deloitte, this mismatch between the CMO mindset and CEO expectations is one of the key reasons why CMO tenure is so short. While CMO job longevity has recently improved, nearly doubling what it was in 2006, the average stint is just 45 months – relatively short compared to the average CEO tenure of eight years and the CFO’s 10 years. Why are many CMOs failing to respond to the CEO’s request for profit-and-loss metrics when their tenure is relatively tenuous? Here are a few possibilities…
- “Mad (Wo)Men” aren’t equipped as “Math (Wo)Men” – lack of analytics and data science talent
- CMOs fear valuable activities not tied to revenue may be cut from the program
- Learning what works in a campaign (within the marketing team) is easier than partnering with sales, IT and finance to determine revenue contribution
- A lack of integrated technologies hinders closed loop reporting from prospect to purchase
Despite these challenges, CMOs must measure marketing’s revenue generation – or move on. Essentially, CMOs must be able to answer three basic questions from the CEO.
- How is marketing making money?
- How is marketing saving us money?
- How is marketing improving the customer experience?
How Is Marketing Making Money?
Unless the business sells via ecommerce, marketing is responsible for delivering qualified leads, not closing sales. So for marketing to demonstrate bottom-line business results, it must accomplish a few prerequisites. Marketing must be working closely with sales; both teams need to agree on the most desirable customer personas and the best way to engage with them. Next, your marketing software should integrate with your customer relationship management (CRM) system. This technological integration will make it easier to track prospects from their first visit to your website on through their first purchase.
Once you can tie marketing activities to actual sales, ROI can be calculated using the standard formula: (gain – cost) ÷ cost. If you spent $100,000 on marketing this year and the investment resulted in $300,000 in sales in the same period, your marketing ROI would be 200%.
Graphic: Gorilla 76
The same basic formula can be used to calculate the marketing ROI over the course of a relationship with an individual customer. From here, you can determine which marketing activities were most effective by persona via content scoring or another attribution method. Using this insight, you can identify the most cost-effective mix of content, channels, and cadence that moves each persona through specific buyer stages and on to a closed deal.
How Is Marketing Saving Money?
Marketing has long been thought of as a “spender,” but it can also be a saver to the business. Maybe you changed tactics, lowered spend and outperformed the sales of a similar campaign earlier in the year. Also consider how marketing activities generate financial savings for other lines of business. For example, you can show how an increased investment in social media marketing saves customer care time and resources (overhead). What about your proactive social media strategy during a recent crisis? Can you estimate how much it saved the company in PR costs and reputation damage? Consider how your buying pattern data might be able to help lower manufacturing costs. Let’s say embossed folder sales have spiked recently. If the data shows that customers who purchase those folders are more likely to buy a faux-alligator pencil cup than a leather envelope holder, manufacturing may want to divert more dollars to pencil cup production.
How Is Marketing Improving the Customer Experience?
While it’s tempting to classify customer experience as a subjective indicator relegated to soft metrics only, it can be tied to revenue. Many companies use the Net Promoter Score (NPS), a customer experience metric based on whether or not a customer says s/he would recommend the company to a friend or relative. However, NPS alone isn’t sufficient proof of financial gain. How many companies actually investigate whether the intended referrals happen – and if these referrals result in sales? NPS limitations become painfully clear when marketers are hit with this familiar question from the C-suite: “How much revenue would we gain if marketing turned detractors into promoters?”
According to author and consultant Carlos Molina, marketers can link customer experience metrics to earnings by correlating NPS (or other customer experience classifications) with business indicators (e.g., average revenue, average cost, churn, etc.) for each customer within your CRM system. Using this information, Molina says, companies can determine if customers who enjoy a better experience:
- Are willing to pay a premium for that experience
- Spend more with the company
- Are less likely to churn
- Refer the company to others
From these insights, it’s easy to see how exceeding customer expectations can increase customer lifetime value and loyalty – the top goal of U.S. marketing organizations, according to Forrester Research.
Marketing performance measurement means different things to different executives. For CMOs, webinar attendees, trade show leads, and social sharing are meaningful metrics. For that reason, they should be tracked. But if the CEO continues to get a report stuffed with campaign results, marketing will likely hold on to its “cost center” moniker. And the biggest cost of all? A missed opportunity to extend your CMO tenure.