Reprinted from Forbes Magazine, issue March 10, 2011, Read article »

How CMOs Can Deliver Higher Accountability, ROI

Accountability and return on investment have been the growing mantras of chief financial officers at companies of all sizes. Senior marketers are neck-deep in the age of metrics and proving value of their efforts now. And all this is in addition to a chief marketing officer’s traditional strategic goals to drive value for the business and brand long term. How does the enlightened CMO adjust to the heightened role of finance in evaluating and quantifying marketing decisions?

Learn to Love, Or At Least Collaborate

Your CFO has a clear job to do–deliver the numbers to the CEO and potentially your investors. In this new world, you need to collaborate with the CFO to agree upon a framework that provides financial insights to your efforts while ensuring that you and your team are not consumed with reporting results instead of creating them. As the enlightened CMO, it is your job to initiate and set and deliver on this tone of collaboration and co-ownership.

Start by developing a marketing performance measurement plan with the CFO that captures not only the higher-level strategic goal, but also KPIs (Key Performance Indicators) against that plan. You and the CFO can more easily identify and quantify issues and opportunities this way. Also, come to these collaboration meetings prepared with the key metrics that you collectively determine to be important to the CFO as well as the CEO. These metrics must be tangible and bottom-line driven, such as customer costs and customer value.

You can use this approach to not only manage short-term, revenue-driving initiatives but also longer-term, strategic initiatives that will unlock that next level of revenue contribution. Make the CFO an advocate–share data, insights and ownership whenever possible to reinforce that you’re paddling together.

That’s especially important given that last year’s CMO Council Marketing Outlook found that fewer than six percent of marketers were inclined to forge tighter connections with line of business and financial executives, many of whom have P&L control or heavily influence marketing spend.

 Make Marketing a Revenue Center

Better yet, be a profit center. If you already own the P&L, this is an old hat. But if you’re primarily viewed as a cost center driven by “staying within budget,” you have some work to do before your next meeting with the CFO. Let’s start with the fundamentals:

–Understand the revenue path. The first step is tracking how your efforts are directly impacting revenue, from acquisition through customer retention and lifetime value. Depending on your organization, this may take a while to work through the chain, crossing silos and potentially taking you deep into the operational underbelly. But it is imperative to fully understand the costs, points of leakage and revenue contributors attributed to both finding customers and keeping customers.

–Get the data. Now that you know the revenue path, it’s time to get access to the data. Unless your company has undergone a full-scale, warehouse effort, expect the data to be dirty and decentralized. Work with your Ops/IT team to identify software that can assist in cleaning up and providing access to dashboards for high-level KPI management and reports for the deep dive.

–Focus the team. You know the path. You have the data. You have your goals and KPIs. Now it’s time to mobilize the team to think differently. The war cry is now: “If you can’t measure it, you can’t manage it.” Already seeing the challenge? There may be a need to restructure or reassign responsibilities across the team to ensure proper tracking, measuring and optimizing against the outcome. Having a program go live in market is no longer the end of the team’s efforts; it is just the first column in the spreadsheet. This new way of thinking requires a shift in focus, responsibilities and culture. Your team needs to expand thinking beyond cost savings in the budget; you are now delivering bottom-line results, and the conversation should be about growth.

Here’s a little fact: Two-thirds (65%) of marketers say that CEOs and CFOs are making greater demands than last year for marketing to show a potential return on investment as part of securing budget (Lenskold Group/MarketSphere Marketing ROI and Measurements Study).

Align Your External Partners–Or Get New Ones

Some call it “skin in the game,” “pay for performance” or “value-based compensation.” No matter the name, the enlightened CMO needs external “partners” directly aligned with the financial goals for the business to ensure success. And you’ll likely find that a more aligned financial model will also drive a more aligned strategic relationship with your partners.

Many economists will tell you that “incentives matter” when looking to drive a certain course of action. The probability of success for a desired outcome should increase if the incentive is tightly aligned with delivering that outcome.

Supplier compensation should be no different. You can be argue that if a supplier’s compensation is tied to delivering point solutions or services that stop short of producing a revenue-driving outcome, the supplier is not directly motivated to go further. Is misalignment the fault of the supplier or the marketer/buyer in that case? You could counter argue that a good supplier will do their best work to get the next project or ensure the long-term health of the relationship. But softer qualitative evaluations carry risk and may not support your need to demonstrate accountability and return on investment.

The same level of accountability that you and your team are signing up for should be true for your suppliers/partners. If your agency/partner is not open to the discussion, find one who is. It will not be a long search.