During an economic downturn, companies are under pressure to trim expenses while justifying investments intended to drive ongoing customer growth. Marketing can get caught in the cross hairs of budgetary reduction exercises, but some large firms, including Beyond Meat, for example, are betting that more marketing will drive a bigger customer pipeline.
“There remains confusion around what we make our plant-based products from and how we make them. Setting the record straight is a key part of getting consumers back to the category,” CEO Ethan Brown told investors in May as he explained the company’s continued marketing push. “Clear marketing around health and taste … [is] going to drive us back to a growth position in the second half of the year.”
The conversation between CFOs and chief marketing officers, in turn, is about positioning marketing as an investment rather than a cost, and often centers around aligning marketing performance metrics with firm-wide goals.
Financial chiefs have mixed outlooks on marketing spending. A survey of about 300 CFOs in November by Gartner found CFOs had mixed opinions of marketing spending: just over half (53%) wanted to increase marketing budgets; while a little less than half (46%) wanted to keep marketing spending at the same level or trim it.
Metrics matter
Regardless of whether marketing budgets are moving up or down, discussion around metrics is increasingly coming into focus.
“In order not to restrict your CFO when you put forth your marketing budget, you just can’t defend the return on investment for half of it. You need to support the ROI for all of it,” said Emmanuelle Rivet, vice chair, U.S. technology media and communications and global technology leader at PwC.
CFOs are looking to see the gross profit for every dollar of marketing invested, she added.
PwC research suggests there is room for improvement: PwC analysis of proprietary research from 2022 and 2023 concluded that the majority of executives found that up to 20% of marketing investments were inefficient or ineffective, a company spokesperson told CFO Dive.
In challenging economic times, firms tend to cut brand spending and focus more on performance marketing, a dynamic that played out in the Great Recession, said Lauren Wiener, a managing director and partner and head of marketing for North America at Boston Consulting Group.
Brand marketing is aimed at generating longer-term consumer affinity, while performance marketing is often linked to shorter-term, more concrete metrics, including yielding leads, new customers, and return on the amount of money spent on acquiring the customer.
“What we’re seeing … is a push and pull on that for brands to be successful,” Wiener said. “What a CFO is going to want is positive, immediate and a certain return, and what a CMO wants is to balance is the short-term marketing levers that drive sales with the long-term branding initiatives which are critical for the overall long-term health of an organization.”
Beyond billboards
CMOs need to convince CFOs that marketing is an investment instead of a cost. CFOs say they are prioritizing marketing efforts that drive a quick return and for which attribution can be clearly established. Return on customer acquisition cost, or the amount a company spends to gain a customer, is a common benchmark for measuring whether marketing efforts are successful.
“You work hand in hand with your CMO to come up with a bottoms-up plan that you both think is achievable,” said CJ Gustafson, CFO of auto parts marketplace PartsTech and author of CFO-focused newsletter Mostly Metrics. “A key [metric] to look at is the customer acquisition cost and the payback it takes to recoup that cost. This is something I work on with my CMO on a monthly basis.”
Gustafson said he doesn’t think the metrics for marketing have changed since the economic downturn, but the level of scrutiny is higher.
“With customer acquisition costs, you measure that with a payback period. Now, a lot of mid market companies are aiming for 12 months or less,” he said. “A couple of years ago, CEOs and boards were fine for 18 months, 20 months, or 22 months — because we were chasing the market.”
The emphasis now is on generating a quicker return that’s measurable, instead of less easily attributable brand boosting initiatives like conferences and branded swag, he added.
Jeremy Klaperman, CFO of New York-based business banking tech firm Rho, said the company is emphasizing growth marketing over brand marketing.
Growth marketing “refers to specific campaigns such as paid or unpaid advertising or search that brings [potential customers] to your website or brings them into the funnel,” he said, explaining that all leads can be tracked. “A billboard is great, it’s beneficial, but you can’t say ‘Hey, we got those leads from that billboard.’”
CFOs skill up on marketing
Just like CFOs have learned to work with chief information officers, CFOs also need to beef up their understanding of marketing in order to bridge communication gaps between CFOs and CMOs, executives said.
“CFOs need to understand the marketing funnel, the marketing pipeline … I’ve done a lot of studying on marketing topics that two years ago I had no idea what they meant,” Gustafson said. “You have to get into the mind of the CMO.”
One way to help CFOs learn about marketing is to meet with team members one on one. Angela Pierce, CFO of Anaconda, a distributor of Python and R programming languages, said she meets regularly with marketing team members to address outstanding questions, including ways of measuring return on investment. (Anaconda doesn’t have a CMO, but the company’s vice president of marketing reports to the CFO.)
“Once you set up that cadence, it's been really good because I can have a one-on-one relationship with [marketing team members],” she said, noting that it’s also a way to inform marketing team members about how metrics are measured at the board level.
CFOs also need to step outside of a black-and-white interpretation of metrics, and take marketing team members’ advice on how to interpret the numbers, she said.
“There's a lot of art in marketing… I really have tried hard to not assume that I understand what the data means,” said Pierce. “The more important thing to me is understanding the data and collaborating with the team on it versus just having access to it.”
