CFO vs CMO: How Much Should Marketing Spend?

Finance Insights for Professionals

Finance Insights for ProfessionalsThe latest thought leadership articles and reports for Finance pros

Tuesday, October 8, 2019

Chief financial officers and chief marketing officers who are able to work constructively together and focus on shared goals can make a huge contribution to the overall success of a business.

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Finance and marketing are two of the most important components of any business, both of which need to perform at the highest level for the organization to succeed.

It’s not uncommon for there to be friction between these departments, since finance is often preoccupied with managing budgets and limiting the company’s outgoings, and marketing is keen to secure the funds it needs to bring in new business and drive growth.

Ultimately, however, finance and marketing are on the same side, with CFOs and CMOs essentially sharing the same goal: to make money for the business.

One of the most effective ways of bridging any gaps between these two vital departments is to create a budget that gives marketing what it needs, but also provides the checks and assurances necessary to keep the CFO happy.

Here are some of the key steps that could help you build a budget that satisfies all parties and informs your decisions about how much the marketing team should be spending.

Align the marketing budget to business goals

The wider goals and ambitions of the business are a vital consideration when you’re allocating budget to the marketing department.

Firstly, it’s important to have a clear idea of your most important objectives for the next quarter, the coming year and beyond. Armed with that knowledge, you can make budgetary decisions that are relevant, justifiable and in line with what the company is hoping to achieve.

It’s common for businesses to allocate between 7% and 12% of total revenue to marketing, but there’s always a possibility you’ll need to spend outside of this range, based on factors such as the firm’s current financial situation or wider trends in your industry or the economy.

If you’ve enjoyed a particularly strong year and want to build on it with a bold expansion strategy, for example, you might want to give the marketing department greater spending power. Contrastingly, economic headwinds or challenging trends in your industry - new regulatory compliance challenges or higher raw material prices, for example - could necessitate a reduction in marketing spend.

Test and evolve

Much like many areas of business, marketing has a lot to gain from regular experimentation, testing, learning and evolving. Making allowances for this in your budget can help to ensure that the marketing department has the flexibility and adaptability it needs to respond to trends in the wider marketing space or changing customer expectations.

The growing importance of responsiveness in business financial planning is reflected by the fact that some businesses - Starbucks, for example - are beginning to view traditional budgeting methods as outdated.

Budgets can be much more effective when they’re malleable and not purely based on forecasts or assumptions made months in the past.

“Once you develop a marketing plan and budget, remember that it doesn’t have to be fixed. There may be times when you need to change things, such as running another campaign or event to capitalize on great timing.” - David Oragui, lead growth engineer and founder of Grow Hack Scale, for The Manifest.

Prioritize ROI

One of the common issues for CFOs when it comes to allocating marketing budget is the difficulty of linking the department’s activities to measurable returns for the business.

Results such as greater engagement on social media or an improvement in brand awareness will be viewed as a big win by CMOs, but finance directors are likely to take a more analytical, numbers-based view of what they mean for the company.

It’s therefore important for the budget to allocate resources specifically to the measurement of marketing ROI.

“As the media and digital landscape evolves at breakneck speed, continually reassessing the tools, services and programs you're employing is a great way to determine real-time ROI of your overall spend. Today's measurement tool may be worthless to you tomorrow.” - Nathaniel Eberle, former director of PR and brand at HubSpot.

Rather than being viewed simply as a cost, marketing should always be seen as an investment that will deliver quantifiable returns.

Collaborate to anticipate hidden costs

One of the biggest headaches for CFOs is when the business comes to the end of a quarter or a financial year and has spent more than was initially forecast in the budget.

There are many reasons why this happens. As far as the marketing budget is concerned, it’s not uncommon for the department to encounter hidden costs - unanticipated expenses that can steadily build up and cause budgetary problems further down the line.

One of the best ways to prepare for this is having the finance team work closely with the marketing department in drawing up a budget that encompasses the widest possible range of potential costs.

If marketing is making plans to support a new product launch, for example, the budget should allow not only for obvious expenses like the promotions attached to the product, but other activities like customer surveys and research before it goes to market.

Ultimately, both the finance and marketing departments have a lot to gain from working closely together and focusing on shared goals for the good of the business.

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