The CFO's Role in Measuring and Enabling Sales and Marketing Effectiveness

Ogre at the gate. Often this is how many sales and marketing organizations view the CFO who casts a baleful eye on their efforts and scrutinizes their ability to produce an effective return on investment.

Perhaps the scrutiny is for good reason. Sales and marketing expenses, particularly trade promotion, normally constitute the largest part of a company's P&L. The role of the CFO is to somehow ensure that these efforts are functioning efficiently and effectively, as well as firmly connected to the rest of the enterprise. As a result, CFOs are challenged to strike a delicate balance between serving as "ROI enforcer" and fostering an environment that promotes best practices and innovation. The CFO needs a clear understanding of sales and marketing's efforts and expenses in order to better evaluate its effectiveness, reduce ROI leakage and direct funds to projects that enable innovation.

The Challenges to Measuring Effectiveness

Any marketing organization is responsible for creating and encouraging customer demand in both the long and short-term. Not all marketing efforts result in an immediate purchase; rather effective marketing can also create awareness of the company and its products and foster long-term loyalty. In light of this, marketing organizations use multiple measures — brand awareness, brand loyalty, intent to purchase and actual purchase — in order to gauge customer response. However, measuring these linkages between sales and marketing activities and customer purchase is not an exact science. Despite readily available sales data, it is often difficult to link an increase in sales to a specific activity such as a promotion or change in sales strategy. For example, a long-established customer may be unaffected by any of these efforts and make purchases that can skew the findings. In addition, effectiveness and return on investment are typically measured and reported internally, and can be open to interpretation.

Accordingly, the CFO needs tools that create better visibility into the sales and marketing process so activities with higher returns receive increased support and those with lower returns can be optimized. Application of a consistent analytic process substantially improves management visibility and subsequent return on investment on sales activities. In addition, because most sales organizations align performance to incentives, analytics can also help organizations construct highly effective incentive models.

Applying Analytics for Better ROI

A robust analytic process starts with data. While aligning cause (what the organization does to influence sales or customer behavior) with effect (the outcome of that activity) seems intuitive, the process is often not universally applied. Building a process to collect and align cause and effect data, in a consistent and readily accessible fashion, is key to improved effectiveness measurement and data credibility.

Such data should be aligned by basic indicators — such as time period, geography/account, measure and product — with the ability to aggregate up or down to the most important execution levels of the company. A wide range of methodologies and techniques can be deployed based on the nature of the data, the key levers for driving the business and the level of sophistication desired. Some of these approaches include:

• Comparisons to internal or industry KPIs;
• Test and control to evaluate alternative approaches for one or two measures;
• Advanced analytics —such as regression, factor analysis and operations research — to measure multiple activities that occur simultaneously; and
• Simulation /"what if" capabilities which demonstrates what might happen if the activity or spend is changed.

Whatever methodology or KPIs are employed, organizations should standardize to provide an objective means of comparing across products, customers and activities. CFOs can take the lead in establishing a common minimum practice for all spend and KPIs and a higher level of practice for the more strategic spend, mindful of the scale and cost of analysis. The CFO's goal is to establish an overall process, embraced across the enterprise, with KPIs that are both SMART (Specific, Measurable, Actionable, Related to the business and Time bound) and provide demonstrable benefits to all.

Digital Marketing and the CFO

At first glance, digital marketing activities are easily measurable. Every page load from a website, every click-through on a banner ad, and every brand or product mention on a blog or social media site are recorded. Even the path a visitor takes within a site can be monitored. However, the quality of a page view or impression, the sphere of influence for a Twitter account, and the importance of a product mention are less measurable. Unlike television or radio ratings, there are no well-defined standards for digital marketing.

Despite this, digital marketing may be one of the most measurable, flexible and effective mediums for a company to utilize. Digital marketing offers a direct channel to your customer with no intermediary or gatekeeper. This is where the role of the CFO can really shine. The depth and variety of digital marketing activities are growing faster than the ability to measure its effectiveness. With so few benchmarks or established best practices, the CFO office can be a terrific resource, both for driving collaborative evaluation (test, learn and build) with customer-facing teams, and for seed funding of activities to best utilize this increasingly important marketing tool.

The CFO is in a position to drive formation of a process that makes best use of digital marketing and guides marketing's basic tendency to embrace the latest "shiny object" tools for enhancing sales. Here are a few best practices for the CFO:

• Develop an approach to collect and align the many available digital inputs such as inbound, outbound, user-generated, emails and site visits. As these inputs come from both internal and external sources, consider maintaining an internal database or using an experienced third-party resource that specializes in data integration, rather than using a digital advertising or promotional agency. Data integration and database integration are not typically the main focus of digital agencies. Their tenure may be short given the fickle nature of agency partnerships.
• Establish evaluation procedures that take into account the role of each digital tactic — such as awareness, activation and loyalty — and align them with an appropriate and measurable KPI.
• Deploy an analytic methodology for fast-turn evaluation of actual responses. Test and learn at a small scale and deploy those tactics that provide the best fit.

With so much riding on outcomes, sales and marketing cannot function as a silo operating outside the understanding and guidance of the CFO. But a forward-looking and engaged CFO can avoid the "gatekeeper" label by promoting and sponsoring an enterprise analytic process that enables a more collaborative approach to the overall task of increasing sales and marketing effectiveness. Analytics can provide clear, timely insight into sales processes, marketing efforts and how they affect the organization at large. By leveraging analytics, the CFO can create competitive advantage without stifling the innovation that drives growth.

Thomas McGuire, vice president, leads the overall Sales and Marketing Services business operations within Genpact, a global business process and technology management firm.