Whether it’s attending board meetings in person or preparing the CEO for them, CMOs need strategic solutions backed by reliable data to demonstrate the impact of the organization’s marketing decisions. The board’s goal is long-term financial strength and shareholder value. Communication at this level is therefore essential to achieve alignment.
I’ve seen marketing communications with boards go awry when the conversation shifted from macro-level profitability to celebrating increasing social media followers or website page views. These custom measurements may seem important, but they are not related to the measurements of interest in the measurement tables.
Custom metrics also play a central role in the field of analytics, where organizations appear data-driven without providing meaningful insights. In this context, value comes from extracting actionable insights from reliable data through proper analysis. Without it, the exercise becomes what WC Fields once described: “If you can’t dazzle them with brilliance, confuse them with bullshit.” »
To avoid falling into this trap, CMOs should focus on metrics that boards are or should be interested in. Here are four that every marketer should follow before entering the boardroom.
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1. Projected revenue influenced by marketing
To begin, the board wants to know how much revenue the organization is projecting. Often the entire revenue pipeline is attributed to sales, but many marketing efforts have helped generate a significant portion of that revenue, and you need to be able to talk about that.
Obviously, you’ll need to work with your team, sales, and possibly finance to design an attribution model, but even if it’s not perfect, you should still have something in place until a better model can be proposed and implemented.
Otherwise, you’re reporting that all projected revenue comes from sales, and when you separate marketing from revenue generation, you’re effectively telling the board that marketing isn’t generating revenue – or at least not in a measurable way. This turns marketing into a cost to be minimized or eliminated rather than an essential part of revenue generation.
2. Revenue influenced by marketing
A big question the board asks of any organizational team is how much money you make for the organization. For marketing, that’s it. Just like the first metric, you’ll need to work cross-functionally to develop the methodology, but this might be the most important metric for CMOs to succeed.
It should be noted that marketing influence is an important distinction here. It’s common for sales to be the team that directly generates revenue and gets the (sometimes metaphorical) money in their hands. There is usually no sales and marketing revenue, just revenue. Even if sales handed over the check, part of that check would not be available without marketing. It is essential that the CMO takes – and gets – credit in front of the board.
3. Return on marketing investment (ROMI)
- ROMI = (Marketing Influenced Revenue – Marketing Cost) / Marketing Cost
Now that the board knows how much money marketing brought in to the organization, they will want to know how much it costs to generate that revenue. This is the CMO’s profitability ratio, and you want it to be positive or at least trending in that direction.
If it’s not positive now, you should actively work on a plan to make it happen. The ship isn’t necessarily sunk if you’re not there, but it’s worrying. The board will want to know the plan.
Internal conflict may arise due to marketing-influenced revenue measurement, and you need to anticipate it.
Sales likely has its own ROI metric which is often simply calculated as:
- ROI = (Revenue – Cost of sales) / Cost of sales
The problem is that marketing-influenced revenue is often, but not necessarily intentionally, included in the sales ROI equation. If this happens, marketing-influenced revenue is counted twice when used in ROMI and sales ROI.
To accurately calculate sales ROI, it must be:
- Sales ROI = ((Total Revenue – Marketing Influenced Revenue) – Cost of Sales) / Cost of Sales
Sales can sometimes view this as stealing a portion of marketing revenue. So, as previously mentioned, it is important to develop a cross-functional influencer marketing methodology to hopefully avoid this conflict.
4. CLV:CAC ratio
Customer lifetime value (CLV) and customer acquisition cost (CAC) alone are key organizational metrics that CMOs should master. Ultimately, the board wants to know if the organization is profitable.
A CLV higher than the CAC is a strong sign of overall profitability, even in the face of a negative ROMI. Focusing on this metric also avoids the conflict between sales and marketing that can arise due to revenue attributed to marketing, as this ratio includes all sales and marketing costs as well as projected lifetime value.
Even if a board wants this metric to be greater than one, it is not a metric we should seek to maximize, as a high CLV:CAC ratio suggests the possibility of underinvestment in sales and/or marketing. As a CMO, you need to keep an eye on this, especially during budget conversations.
The Boardroom Language Every CMO Should Speak
There are many metrics that CMOs and boards use to ensure the health of marketing programs and businesses. To communicate effectively and build a strong relationship with the board, CMOs must understand these four metrics and explicitly include them in their strategic plan.
