How Big Data Can Help CMOs’ Budgeting Process

by Jeff Winsper

According to the American Association of Advertising Agencies, more than 1 trillion dollars are spent globally on advertising alone. This does not account for any human capital or other media channels. From all the research conducted, at best, 50 percent of CMOs claim they can measure their ROI.*

According to Bill Zengel at the Association of National Advertisers, accountability has been the No. 1 issue facing CMOs for the 7^th year in a row. If CMOs want to be held accountable, and yet are challenged to measure and monitor their marketing investments, perhaps it’s time to start the journey so there is a livelihood destination.

The conversation about marketing’s value to a business has been discussed, challenged and beaten up for decades. Though not an unfamiliar territory for many C-level executives, the marketing ROI topic seems to be central to this discussion. It rises and falls in any fiscal year, and then it’s swept under the rug for another day. Typically, the topic surfaces under certain business conditions, and it’s not usually during prosperous times. I suppose this is not unusual, as most leaders and functions are scrutinized more so during tough times than rising tides.

Irrespective of unexpected scrutiny, like clockwork, marketing executives sit in front of judge and jury at every budget-planning session, usually occurring between June through October. Even if marketing had a seat at the table, there still remains the burly eye from finance wondering what exactly marketing has done for “me” lately. “Me” is the proverbial “me,” representing the shareholders and corner offices alike.

As usual, marketing tries in earnest to explain how its spending provided a return – an incremental return. Some CMOs get past the gauntlet and declare victory with salvaging baseline and, hopefully, a few percentage points more. Usually, the CFO sees marketing as a cost of sales, so as the revenue forecast increases, so doesn’t marketing’s budget. This is a cost-based mentality, not an investment-based approach.

However, until marketing can empirically prove its incremental return, it still remains a cost center. We did an online group snap survey with CFOs asking them a simple, yet provocative question: “Do you believe marketing is an investment or a cost?” Clearly this heated debate ended in a tie, with some using strict GAAP principles to apply it as only an expense on the P&L, while others, who clearly post it correctly, were far more philosophical and granted its acceptance as “investment.”

Heading into 2014 and armed with your budget, perhaps this is the year you build a true ROI reporting framework. The sooner you have a more global view of all your cost centers — and, of course, the resulting incremental fiscal gain from your investments — the more likely you can stand with confidence heading into the summer planning session.

In order to demonstrate to management the difference marketing contributes to the business, there are some very simple steps you can deploy to build the confidence of the c-suite. It’s worth the journey to collect, manage and report on marketing ROI. I happen to like the “go big or go home” philosophy because I believe the “small wins” approach reinforces that leadership is already in a deficit prior to sponsoring change management. That said, not all are in the position to swallow the whole apple. But chew on these simple steps to get started.

Baseline the perspective: It’s critical to assess your peers’ current understanding of the term and definition of “enterprise Marketing ROI.”  It can be a “fat word” that means many things to each — just like the word “brand.”  You may be surprised to find out your peers are more aligned in principle than not. Please be mindful that campaign-level ROI metrics and/or claims of revenue contribution can be highly scrutinized by senior management, at best, and often misleading for future investments, at worse.

Gauge the importance: Assuming people know about the definition of Marketing ROI, do they really care? If they do care, how important is it to senior management that you measure, manage and optimize Marketing ROI? I’d bet they do. According to The Fournaise Group, “80 percent of 1,200 global CEOs believe marketers are too disconnected from the short-, medium- and long-term financial realities of companies.” To further support the caution around defining Marketing ROI vs. Campaign ROI, Fournaise reports, “69 percent of B2C CEOs believe B2C marketers now live too much in their creative and social media bubble and focus too much on parameters such as ‘likes,’ ‘tweets,’ ‘feeds’ or ‘followers’ – the very parameters they can’t really prove generate more (business-quantifiable) customer demand for their products/services, and the very parameters judged ‘interesting but not critical’ by CEOs.”

Map the journey: There is a very logical approach in which a CMO can start to establish the process for developing smart enterprise-wide marketing analytics. It’s usually it’s not as difficult as one would think. If you currently have some campaign-level marketing metrics, this is a good start. Even better is when you start to have a master data management approach for key data files from your customer transactions, sales behavior activities, POS, etc.

Be clear on the definitions: Currently, there are no universally accepted marketing standards, which is why the Marketing Accountability Standards Board exists. All too often the debates between sales and finance exist because of nomenclature and definition semantics. Get past this by partnering at the outset, then catalogue your classes of KPIs such as leading indicators and economic indicators. This helps provide management an understanding of trends to make more nimble decisions with investment.

Optimize your models: Marketing is still a social science, so nothing has absolutes. When measuring your key performance indicators, provide ample testing time, historical and real-time data and CFO validation to optimize the models so they can be as close to perfect as possible.

In my experience, it’s far better to be forthright at the outset for reporting any true enterprise fiscal-based marketing ROI. Typically CFOs and CEOs are much more appreciative of the intent to measure, monitor and optimize Marketing ROI, even if it’s not 100 percent accurate in the beginning. Not doing it means marketing is still providing 100 percent of 0 for ROI from their perspective. Let’s make 2014 the year in which bold decisions to step in the right direction will have all CMOs stand up proudly and proclaim, “It makes money for the company.”

*Source: IBM 2012 CMO study

Jeff Winsper is the founder of Black Ink, a technology company that provides SaaS offerings to help the C-suite measure, monitor and optimize its Marketing ROI. He is also a charter member of Marketing Accountability Standards Board. He can be reached at jwinsper@winsper.com.