Most marketers have little experience with financial metrics and analysis. Their activities traditionally centered around creating programs and developing relationships. However, as marketing and sales evolves into an integrated system that produces high-quality customers, marketing professionals are placing more emphasis on measurement and optimization of their production system.
The next step in the financial evolution of marketers is to become more savvy when they speak to their CEO. They need more work at becoming skilled in financial conversations with their executives.
Why do marketing executives struggle with these conversations? Because they are used to thinking in terms of production: qualified leads, cost per lead, and conversion rates. These metrics help the marketing team to improve the quality and productivity of their work. But production metrics don’t help the CEO become more informed about marketing results.
From Production to Investment as a Frame of Reference
In order for marketing executives to communicate with the CEO, they have to change their frame of reference. The CEO views the business through the lens of investments and returns. The company’s investors expect the CEO to invest their funds in ways that are consistent with the purpose of the company and that deliver a return on the investment. Conversations with the CEO are more productive when they are framed in terms of investments.
The CEO invests in marketing and sales in order to find, win, and keep customers. Therefore, the CEO wants to know from marketing and sales executives how much to invest in customer acquistion. Next the CEO needs to know what return to expect on that investment in the form of profit that customers will deliver over time.
And finally, the CEO wants guidance on benchmarks. How much should it cost to acquire a customer? How long should it take to pay back the cost of customer acquisition? What should be the ratio of customer acquisition cost to lifetime customer value? Are we trending in the right direction?
Mike Volpe, CMO of HubSpot, once wrote an article that explained the six marketing metrics he uses when he talks to his CEO.
In the chart below he explains how to compute each of the six metrics, the significance of the metric, and rough benchmarks for each metric.
Marketing executives who use these metrics will be more successful at guiding their CEO’s investments in marketing.