It’s important for marketing to understand finance because:
- Finance signs the cheques
- Marketing has a discretionary budget
- Finance controls discretionary spend in a crisis
- Marketing may need to justify financial return to spend
- Finance increases governance in a crisis
- Marketing that doesn’t support sales is harder to approve
For marketers, it is difficult to understand the increased interest from finance teams during a crisis. A fairly static or increasing annual budget suddenly becomes an uncertainty and finance holds the key.
Read on to find out why its important for marketing to understand finance.
Marketing understanding the finance team
As custodians of financial control in an organisation, finance often comes in for criticism. Stereotypical nicknames from ‘policeman’ to ‘scrooge’ fail to capture the broad business support role of finance. Chief Finance Officers (CFOs) juggle a repertoire from accounting and budgeting through to investor relations and strategic advisor. Many finance teams act as business partners to business units or functions such as marketing.
But why am I under scrutiny in a crisis? Marketing is usually one of the functions with the largest discretionary spend in any business. Yes, IT departments also spend a fair amount but most of their spend, also known as capital expenditure, has gone through investment committees and business cases. Unfortunately, this means that when times are good, many busy finance people may pay less attention to marketing as sales rise. When sales suddenly shrink, marketing become flavour of the month.
Hey, don’t worry. It’s not personal and finance are trying their best to help the organisation survive until brighter days return. We previously wrote about why marketing and finance should be best friends forever if you would like to understand this more.
Marketing understanding finance
Firstly, many marketers miss out on financial management in their studies. As a role focused on creative excellence, digital mastery and innovating engagement, the numbers are not always top of the agenda. The pre-crisis norm is a static marketing budget or a few percentage points increase every year. If you now need to explain expenditure and what benefit it brings then a crash course is beneficial.
Secondly, financial control means some layer of governance over business processes or costs. This can range from identifying spend that directly benefits the business and that which is considered ‘overhead’ to full business cases and adapting to approval processes under Zero-Based Marketing.
Thirdly, there is a litany of key financial metrics and terminology to understand. Where finance speak of ‘EBITDA’, ‘NPV’ and ‘ROI’ you report on ‘inquiries’, ‘likes’ and ‘bounce rate’. These are a few examples but notice the finance terms are acronyms and the marketing terms are words. We covered Marketing Return on Investment in a previous article.
We have a blend of skills and talents at Think Beyond. Our co-founder is an ex-Finance Director and Chartered Account that has helped dozens of marketers to grasp finance. For a confidential discussion, simply contact us at firstname.lastname@example.org.
How will marketing and finance understand each other?
Marketing and finance will understand each other by working together and good communication.
Here are a few tips for marketing teams working with finance:
- Think about what you can measure reliably
- Don’t be afraid to ask for help
- Think about areas that you can and cannot cut back on
- Don’t neglect the sales team who need your support
- Think beyond clicks and likes to measure marketing contribution
- Don’t skimp on detail to further finance’s understanding of marketing
Reasons why it’s important to understand finance
It’s important to understand finance to make the most of your marketing career. When finance and marketing are BFFs, they are a powerful team.
Finance signs the cheques
This happens before, during and after a crisis but the extent varies. Before a crisis, finance may sign off the annual budget and only get closer if financial targets are missed. During a crisis, finance is often looked upon to steady the ship and they will ask questions. After a crisis, some of the processes, approvals and governance persist to maintain good financial stewardship. In summary, a good relationship will only make the transition easier and get your purchase order (PO) signed faster.
Marketing has a discretionary budget
Unlike finance, marketing has a budget that is spent in many areas separate to the headcount of the team. From advertising spend to digital agencies, the range of possible channels to spend on is vast. In contrast, finance may only invest in new systems every few years and have little or no budget beyond travel expenses.
Finance controls discretionary spend in a crisis
As sales deteriorate and profits slump, finance must ensure there is enough cash available to keep the business going. Although often viewed as ‘the grim reaper’ coming to cut costs, the truth is they are doing their best to keep everyone in a job. Discretionary spend is considered ‘variable’ and therefore the first port of call to review in a crisis. In summary, costs like travel, training and marketing are the low-hanging fruit.
Marketing may need to justify financial return to spend
A good CFO will only cut all marketing if there is no measurable return on investment (ROI). Equally, the best CMO will only end up in this position if the firm’s survival is at stake. New KPIs, financial models and business cases are ways to ensure that your spend continues.
Finance increases governance in a crisis
Believe it or not, finance teams don’t always revel in more governance. Zero-Based Marketing is the extreme case where every expenditure over a set value needs a business case and stages of approval. There is a significant overhead on both teams but the potential benefit is freeing up money to invest in projects with greater return.
Marketing that doesn’t support sales is harder to approve
When your sales team depends on a steady flow of Marketing Qualified Leads (MQLs), it is harder to cut completely. After all, if half of the leads into sales come from marketing, the team may struggle to hit targets and keep food on the table. Marketing communications and ‘brand awareness’ are harder to justify when salaries need paying.
Why its important to think about a marketing and finance partner
Think Beyond is a marketing consultancy based in Cheshire. Our founders are a level 7 CIM Chartered Marketer and a fellow of ACCA Chartered Accountant. We offer a range of consultancy services to support your business growth and cost-effective solutions to help you innovate. Our agency support services deliver everything from websites to advertising and creative assets. In conclusion, we are ideally placed to help you through the crisis and plan your marketing for a bright 2021.
If you would like to find out more you can complete our quick contact form to request a call back.
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