Demystifying Marketing ROI: A Strategic Approach For CMOs To Prove Their Value
Dusty Dean is a former Product Manager and Co-Founder of BITCADET. He is a member of the Forbes Business Council. About Dusty Dean
Navigating the complex world of marketing can be challenging for CMOs, especially when it comes to proving the return on investment (ROI) for their efforts. In times of economic instability, marketing budgets are often cut. To secure the financial resources of their management and protect their positions, CMOs must take a strategic approach to determine the impact of marketing activities and to prove their value to the organization.
Think and talk like a CFO.
Developing a comprehensive understanding of financial performance is critical to overcoming this challenge. Important financial metrics to report to the CEO and CFO include customer acquisition cost (CAC), customer lifetime value (CLV), and return on advertising investment (ROAS). By effectively communicating their value and the relationship between these metrics, CMOs can reinforce their commitment to marketing investment and demonstrate the value their management creates.
For example, by demonstrating that CLV significantly exceeds CAC, CMOs can demonstrate the long-term viability of marketing efforts. They can also demonstrate the effectiveness of their advertising campaigns in increasing sales by showing a high return on ad spend. To further validate their position, CMOs can also include metrics such as Percentage of Customers Gained from Marketing (MOCP), which measures the percentage of new customers gained as a result of marketing efforts, and Percentage of Customers Gained from Marketing (MICP). The percentage of customers who interacted with marketing during the journey.
A data-driven approach with a focus on metrics that resonate with key business decision makers is essential. By thinking and speaking like a CFO, the CMO can make a compelling case for marketing investments and demonstrate the positive impact his department has on the company's bottom line.
Track and view marketing referral patterns.
In addition to mastering these financial metrics, CMOs should also consider tracking and reporting marketing allocation patterns. These models analyze how different marketing channels and campaigns affect a company's total sales and revenue. By using referral models, CMOs can effectively focus resources on the most profitable channels and make informed decisions about their marketing mix.
An example of a marketing referral form is the multisensory referral form. This model adds value to multiple interaction points in the customer journey, providing a more complete view of the marketing efforts that led to the sale. By using multisensory attribution, marketing managers can better understand how different marketing channels interact and optimize their strategies. Another useful paradigm is time-decreasing assignment, which places greater emphasis on interaction points closest to conversion and emphasizes the importance of recent interactions.
Tell a compelling story.
In addition, marketing managers should focus on creating compelling data-driven stories to convince the CEO and CFO of the value of the marketing investment. By providing real-world examples of successful marketing campaigns, CMOs can provide concrete evidence of the impact their management has had on the company's growth and profitability.
An important aspect of creating these compelling stories is aligning marketing goals with the overall goals of the organization. By showing how their management efforts contribute to the company's strategic goals, CMOs can ensure executive retention and ongoing support for their initiatives.
Marketing managers must take a proactive approach to demonstrating value to their department by effectively communicating key financial metrics, implementing data-driven attribution models, and delivering compelling data-driven narratives. In this way, they can successfully demonstrate the profitability of their marketing efforts and obtain the resources they need to grow their organization sustainably.
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