CMO-CFO Alignment in Portfolio Companies: Why It Matters, and How To Achieve It

When you bring on new portfolio companies, defining titles, setting expectations and clearly assigning responsibilities in the company is usually among the first things you do. This should include identifying and optimizing areas of alignment between the leaders in the company. But, too often, this gets pushed to the back burner because there doesn’t seem to be a direct connection to the investment thesis or because investors are cautious of interfering with the company’s internal dynamics.

However, without alignment between function area leaders, the company could be:

• Missing out on budget efficiencies
• Spending dozens of hours on overlapping work
• Losing potential customers in the cracks between departments
• Pulling the business in multiple different directions

You can’t assume the executive team will be aligned just because they’re in the same office. These relationships need to be proactively managed, with clear communication requirements and goals that make sense for both parties. 

This is particularly true when it comes to the relationship between the Chief Marketing Officer and Chief Financial Officer.

You can use these links to jump to specific sections:

• Why the CMO-CFO relationship needs work
• The benefits of better CMO-CFO alignment: For marketing
• The benefits of better CMO-CFO alignment: For finance
• 4 steps to improve CMO-CFO alignment
  
  

Why the CMO-CFO relationship needs work

In the past, these two roles were often working at opposite ends of the business. The CMO worked with creative ideas and intangible goals like ‘brand perception’. Meanwhile, the CFO made sure the business stuck to the rules and the schedule, with clear-cut goals like EBITDA and MRR.    

But as marketing has changed in recent years, the role of the CMO has changed. Now, a successful CMO is one who uses data to make decisions and can point to the specific costs and returns of their activities. As the CMO role has changed, the CMO-CFO relationship needs to change too.

Forbes has called the CMO-CFO relationship ‘the C-suite’s newest power couple’. In a 2019 EY report, 83% of the marketing and finance leaders surveyed asserted that their marketing activities would be more effective if marketing and finance were more closely aligned. However, even when CMOs and CFOs want to work more closely, this isn’t always easy. In the same EY report, over 50% of respondents stated that the use of data and analytics was the subject of frequent disagreement between marketing and finance. 

PE firms can help bring these roles into better alignment—and it’s in your interest to do so. 

The board is a uniting factor between these two roles. Both need to report to the board on their function area's performance and make their case to the board on why budgets should or shouldn’t be increased. For the board to maximize opportunities for growth, they need to make decisions that are informed by both marketing and finance perspectives. This means the CMO and CFO need to be speaking the same language, measuring the same metrics, and working towards the same objectives. 

Imagine: Rather than spending board meetings refereeing between Marketing and Finance as the CMO argues to increase their budget and the CFO argues to decrease it, these functions could present an organized presentation on the investment that makes sense from both perspectives, with the data to back it up.

This is what better CMO-CFO alignment can achieve.

The Benefits of Better CMO-CFO Alignment: For Marketing

By improving alignment with the CFO, the CMO will unlock two main benefits:

1. Clear metrics on Marketing's financial impact 
2. CFO advocacy for Marketing investment 
   
   

 1. Clear metrics on Marketing's financial impact 

In order for portfolio companies to deliver on ambitious growth targets, Marketing can't just be working towards qualitative goals like improving the aircover for Sales or increasing brand awareness. The CMO needs to connect marketing's efforts to the overall business strategy and results to understand how Marketing plugs into the strategic growth levers of the business. And they need to track this contribution with quantitative metrics.

This means that today’s CMO needs to be finance-literate. Marketing departments with strong financial awareness experience greater ROI on their investments and an increase in growth. Particularly in portfolio companies where timelines are short and expectations high, this is vital.

The CMO should have an in-depth understanding of the company’s finances and their team’s impact on these figures, including: 

• An understanding of financial concepts like EBITDA and cost structures.
• Familiarity with your financial statements like the income statement and balance sheet.
• A deep understanding of the financial model for your business. 
• Working knowledge of your CAC, ROI, and gross margins.

The CEO, CFO and board think about these metrics every day, so the CMO needs to keep on top of them too.

Working closely with the CFO will bring these metrics to the top of Marketing's priority list and put the CMO in a better position to strengthen their financial understanding. 

CMOs that are in alignment with Finance have a more complete understanding of the impact of their department’s spending, including how to budget better and drive more value from campaigns. They get better insight into Marketing's accountability for revenue and can collaborate with the CFO to produce more accurate and standardized performance metrics.

All this means that Marketing comes to the table ready to speak the language the board understands best: Data.

 2. CFO advocacy for Marketing investment 

Marketing faces an uphill struggle to convince the CEO and board that they should allocate additional budget to Marketing instead of Sales or Product. 

Traditionally, Marketing has been viewed as a cost-center rather than a revenue source—particularly by the CFO. This attitude is problematic when Marketing is pushing to get more budget. If the rest of the C-suite or the board sees this investment as an expense instead of a revenue generation opportunity, the CMO won’t get their extra budget approved. But if Marketing doesn't get the resources it needs, it won't be able to drive growth. 

One way for the CMO to increase their chances of securing the right budget is to have the support of the CFO. Because the CFO is the guardian of the company’s budget and revenue, they are a powerful ally to have in the boardroom.

Better alignment means the CFO and CMO will see eye to eye on the expected ROI and the impact of Marketing investment on the bottom line. The CFO can vouch for the validity of the financial projections the CMO is presenting and confirm their proposed budget makes sense in the bigger picture of the business's finances.

If both the CMO and CFO are vouching for the revenue figures Marketing can drive and the right amount of budget to achieve them, the board can be more confident that the budget they’re proposing is a sound investment and that approving it is the right move.

The Benefits of Better CMO-CFO Alignment: For Finance 

Because the CFO is responsible for making the business more financially efficient, they need to ensure every dollar invested is being used wisely and delivering a good rate of return. The marketing budget is usually a significant investment—businesses often spend the equivalent of 8% of their revenue on marketing—so the CFO needs to pay close attention to how Marketing is using their resources.

Source: The CMO Survey, February 2018

To make sure the dollars you invest are being turned into revenue for the company, the CFO needs visibility into: 

• How and when Marketing is using their budget
• Why they’re using their budget in this way
• The rate the budget is being spent
• The current ROI 
• The projected ROI for future periods

By working closely with the CMO, the CFO will have ongoing insight into how Marketing is performing financially. The CMO can also show the CFO exactly how changes to the budget—whether an increase or decrease—would impact marketing activities and the revenue they generate. 

This transparency means less money will be spent on campaigns that aren’t generating a good enough return. If marketing campaigns don’t deliver the results you were expecting, the CFO can spot this early and work with the CMO to adjust the strategy, rather than pulling the plug on the whole campaign.

On the other hand, a better relationship with Marketing also means that the CFO is more likely to see where increasing or continuing investment does make sense. Most CFOs are cautious of increasing Marketing spend, but this could lead to the business missing out on key revenue generation opportunities. By drawing a direct line between campaigns and their dollar value and understanding the value Marketing brings, the CFO can see where increasing the budget will drive growth.

Greater alignment with Marketing also helps CFOs bring more value to the business as strategic advisors. Most CFOs would benefit from being more customer- and growth-oriented: The CMO can share their in-depth understanding of customer needs and how the product fulfills them to inform the CFO's decisions.  

Let’s take a look at the steps you can put into practice to build CFO-CMO alignment.

4 Steps to Improve CFO-CMO Alignment 

Every successful internal partnership is built on mutual trust. This relies on transparency between the function areas, and an understanding of each department’s objectives, priorities, and accountabilities. CFOs and CMOs should be aligned on:

• Metrics—The KPIs they are tracking.
• Performance objectives—The targets Marketing is working towards and what success looks like.
• Marketing’s value—How Marketing is generating revenue and supporting growth levers.
• Accountability—The activities and customer funnel stages Marketing is responsible for, vs. Sales, Product, or Customer Success.
• Strategy and planning—Marketing’s planned campaigns and plays, the projected costs and returns.

There are four key steps CFOs and CMOs need to take in order to achieve this alignment:

1. Define Marketing metrics
2. Set performance targets
3. Explain Marketing’s strategies and plays
4. Map out the input and output of the Marketing budget

Below, we’ll take a look at those steps in more detail. 

1. Define Marketing metrics

For many businesses, the mixture of different metrics each department uses can be a source of confusion and frustration. Perhaps the CMO says that Marketing is delivering great results, but the CFO says they’re not. Depending on which metrics they're looking at, both leaders could be right. 

If C-Suite members are monitoring different metrics—or the same metrics but calculated differently—this causes friction and misalignment. It can even lead to decisions that wouldn’t have passed if every department had been working with the same data.

An EY survey found that the biggest barrier to CFO-CMO alignment is a lack of clear KPIs linking financial performance and marketing.

Source: EY CFO and the CMO: Partnering For Performance, via Forbes

The great thing about data is that it can unify an organization objectively without politics, power dynamics or cultural biases of the company. But to make this possible, you need to establish internal agreements on which metrics are core accountabilities of each department.

To make sure everyone is on the same page and is getting an objective picture of how Marketing is performing, the CMO and CFO need to work together to standardize Marketing’s metrics. 

This means choosing metrics that measure Marketing's impact on overall business objectives, setting standardized calculations, and identifying where the source data should be taken from.

The CMO contributes:

• Data from the marketing stack
• Which insights the marketing team needs to make strategic decisions
• How each channel and campaign feeds into the overall metrics

The CFO contributes:

• Connections from Marketing results to business results and revenue
• Which insights the finance team needs to make strategic decisions
• More accurate calculation methods
   

2. Set performance targets

If the two function areas have different expectations of what success looks like, alignment is almost impossible. How can either department agree on whether the metrics mean a Marketing channel is performing OK and just needs more investment, or whether it's a black hole for investment and should be stopped immediately?

Once the CFO and CMO have agreed on a set of Marketing metrics, the next logical step is to set goals that both parties agree on.

This might include targets for the following:

• Conversion rates at each stage of the pipeline
• The value of the opportunities in the pipeline
• The rate prospects are moving through the pipeline 
• Cost per lead
• Cost per opportunity
• Cost per closed-won deal
• CAC:LTV 

Establishing aligned targets is an ongoing process. As the business evolves and the marketing activities evolve in response, Marketing’s KPIs will need to be regularly reassessed. The CMO and CFO will need an ongoing dialogue to make sure they continue to align on Marketing’s goals. 

3. Explain Marketing’s strategies and plays

As well as aligning on the performance of Marketing as a whole, the CMO needs to show the CFO how each element of the Marketing strategy aligns with the investment thesis and overall strategic goals. For the CFO to support Marketing's activities, they will need to see a comprehensive plan that has a strong business case and is supported by data. 

The starting point for this strategy should be data analysis of current channels and campaigns, including: 

• Marketing generated revenue (dollar value and percentage of total)
• Marketing generated leads at each stage in the pipeline
• Marketing spend broken down by channel and campaign

With the marketing tools that are available, there is no excuse for not basing decisions on data with a high level of granularity. This includes conversion rates between funnel stages, the performance of individual campaigns, and the revenue that each delivers. 

By mapping out this data, the CMO should be able to present a data framework like this: 

From here, Marketing can show where the opportunities are to save money by dialing back investment in some channels while generating more revenue by increasing investment in others. This data also gives them the tools to explain why these opportunities make sense from a strategic perspective and the scale of the potential pay-off from following their plan.

Marketing can shortcut the time it takes to build out this data by customizing our marketing data framework. Click here to download the template.

4. Get CFO buy-in on Marketing’s budget

The Marketing budget can be a major source of contention. To put their strategy into effect, Marketing obviously needs budget. The CFO is the gatekeeper of those resources. Alignment between the CFO and CMO benefits both parties by leading to Marketing budgeting more effectively and the CFO getting behind this plan as an advocate in the boardroom.

Too many marketing leaders base their budgets on a gut instinct or the investment they suspect a competitor is putting in. This approach won’t wash with the CFO. And for good reason. This relies on guesswork at best. There may be some hits, but there can also be some very costly misses that would have been avoided by basing the budget on data.

What Marketing can do better here is to explain how its budget is currently performing and then bring that data to the board level and explain why more budget is needed. The marketers who can't do this are left constantly fighting an uphill battle internally.

The CMO needs to present clear data showing how the marketing budget is spent, and how this tracks to dollars generated in closed-won deals and upselling existing customers.

They then need to calculate the total Marketing investment they need in a top-down method, tracking back from the number of leads they need to generate to hit their targets. 

To justify their budget in a language that CFOs speak, the CMO needs to present detailed information on the impact of budget changes in three scenarios: BAU, minimum new investment, and dream budget. These scenarios model how the budget would be spread across channels and campaigns, the number of leads it could deliver, and the revenue the business will get as a result.

With CMO and CFO alignment on the opportunities that the Marketing strategy is exploiting and the investment they need to capitalize on them, the CFO can act as an ally to the CMO to secure the budget they need to deliver on targets.

Download our free board meeting template to ensure Marketing provides you with the right data for budget decisions.

Final Thoughts

The CMO and CFO have the same overall goal: Driving company value and growth through sales and profits. With some key adjustments, these two roles can help each other's department work towards that goal more effectively.

The CFO needs to understand that they have to invest money in order to increase revenue through Marketing. The CMO needs to understand that they have to prove the financial return on the investment they’re getting.