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[Cheat Sheet] Finance for Marketers

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Do you feel like your Finance partners are always asking you to justify your marketing? The “Finance for Marketers” cheat sheet will help you frame your marketing impact in a way that Finance can understand and appreciate.

Introduction to the Cheat Sheet series

As a marketer, we spend a lot of our time thinking about the customer, the psychology, and the creativity of the campaigns, activations, and initiatives we produce. We’re like artists painting a Picasso or musicians scoring a Mozart. Sometimes, in the midst of our artistry, we forget the science of marketing. We forget to ask ourselves the burning questions that our partners (e.g. Finance, Product, Tech, etc.) like to know:

Why is marketing important? How do you know it’s working? Why should we care?

We used to be able to say “we trust our gut” or “it’s standard” but those days are gone. Now, we need data to support and validate our intuition.

As part of this Cheat Sheet series, we will breakdown some of the most important parts of our partner teams’ jobs and goals so marketers will have a better way of communicating our impact to them as well as be better business partners.

Finance for Marketers

Role of Finance

Finance’s remit is to be the stewards of the business’ three financial statements: profit & loss (P&L), cash flow, and balance sheet [1]. It’s their job to ensure the business is running smoothly from a financial standpoint, aka there’s enough money coming in from things like revenues to pay for all types of expenses (e.g. salaries, office space, product development, marketing investments). They want to keep things as consistent and predictable as possible, thus they watch the business’ cash flow to ensure there’s more “cash” coming in than going out to keep the business afloat. Meaning:

  1. Finance cares to keep expenses DOWN. And yes, your marketing investments (e.g. advertising; payments to agencies to run advertising, to do research, to develop tools; creative production) are all expenses in their eyes.
  2. Finance cares to keep revenues going UP (and consistently). They don’t like spikes because those are hard to predict and therefore puts the company at risk for not having enough revenues to cover expenses down the line.
  3. Finance loves forecasts. Because their job is to maintain balance in the business’ financials, forecasting (aka predictability) is important. They want to understand everything that’s happening with the business that would impact one or all of the financial statements. And, telling them there’s no easy way to measure marketing’s impact will only lead you down a path where they would rather give funds to another business function vs. marketing.

[1] Though the majority of the article is written through the lens of a business, this cheat sheet holds true for non-profit or for-profit organizations.

What does this mean for Marketers?

  1. Shift vocabulary with your Finance partners. Train them to think of marketing “expenses” as “investments”. “Expense” denotes a cost that is expended and has no payback, whereas “investment” denotes long-term value with an eventual return. In other words, when what you do is an investment, you’re telling Finance that there is always a payback to topline (e.g. revenues) or bottom-line (e.g. profit), which means even if you’re depleting their “cash reserves” now, you’re eventually going to increase revenues or profits in the future that would cover these initial investments.
  2. Connect the dots of marketing campaigns with eventual downstream impact (e.g. sales, revenues, customers acquired). Even if this takes 20+ steps, walk them through it. If Finance can understand that customers make choices over a period of time and it’s the marketers job to influence that choice overtime, they will give you more leeway to show results over a longer duration. For example, if you just say “I need to run TV commercials for $X million”, your Finance team will shut you down immediately. Instead, you say, “X% of our existing and potential customer base watches X hours of TV programming each day, with the $X million investment in TV advertising, we could potentially reach X% of our customer base at X frequency, which will lead to $X million in sales in the next X weeks. In addition to immediate sales, TV advertising can increase our top-of-mind awareness by X, therefore adding another $X million of attributable sales to our topline within the calendar year.”
  3. Show tangible results. Research and data should be your best friends. Just like having to prove psychology theories, you will have to prove your marketing theories. Set up surveys to track hard-to-measure initiatives. Run A/B tests so you can have test and control results. Leverage third party platforms and their attribution capabilities to tie your marketing campaigns to downstream impacts (revenues, profit, customers acquired, customers retained, etc.).

Vocabulary & Metrics

  • Attribution models and lookback windows — Best ways to understand ‘effectiveness’ is to build out attribution models. Every company will build their own version. There are standard ones you can get from media tools like Google and Facebook; however, they wouldn’t be as powerful as ones you build for yourself and your business. The goal of an attribution model is to understand how to attribute increase/decrease in topline to your marketing channel, campaign, initiative over a set time period. For example, if someone bought a pair of shoes after seeing the marketing campaign that had TV commercials about the shoe, influencer posts on social media about the shoe, search ads about the shoe, all of these initiatives should get some credit for helping sell that shoe. Attribution historically has been given to the last channel/initiative that got the customer to place a purchase. This would skew marketers towards investing in channels at the last point-of-sale, e.g. that one email that got customers to convert or the POS terminal at a store. The reality is that customers have been making decisions long before that moment and has been influenced by many touchpoints throughout their decision journey. Thus, modern-day attribution models take into account multiple touchpoints, variable weighting across initiatives, view-through and click-through actions, different lookback windows and many more attributes.
  • Bottomline — This typically refers to the line at the bottom of your P&L, aka net profit (calculated as revenues minus expenses). Oftentimes, marketing has little impact on the bottomline since there are many other factors that go into solving for the bottomline, including headcount/labor costs, operational costs, capital expenditures, interest, taxes, etc. However, your activities do play a part. For example, if your design automation tool reduces the hours spent by your team to design manual campaigns, you may be able to maintain a flatter headcount over time even as your needs grow, thereby keeping the headcount/salary expense lower, and therefore creating a better margin.
  • Click-thru-rate (CTR) — total clicks divided by total impressions—CTR tells you level of engagement and can be a proxy for interest.
  • Conversion Rate (CVR) — total orders divided by total clicks—Different businesses define conversion rates differently. The goal is to figure out the rate at which a customer who shows interest becomes a paying customer.
  • Cost-per-acquired-customer (CAC) — marketing investment in channel divided by number of net-new customers—It’s typically always more expensive to acquire new customers vs. investing in existing customers, so businesses often try to lower CAC as they grow, or quickly turn new customers into loyal repeat customers.
  • Cost-per-click (CPC) — marketing investment in channel divided by number of clicks garnered from that channel — This metric is typical of digital channels with clicks like email, online ads, search, etc.
  • Cost-per-reach — marketing investment in channel divided by number of customers reached—Typically platforms like Meta, Google, TikTok, and Snapchat will provide  percent of customers reached based on the number of users on their platforms and the number of unique users who were exposed to your marketing. Sometimes, you may need to develop your own reach number, which you can estimate as number of impressions divided by the number of times your impression was served (i.e. frequency).
  • Cost-per-thousand-impressions (CPM) — marketing investment in channel divided by every thousand set of impressions, i.e. marketing investment / (impressions / 1,000)—This metric is typical of digital channels where you care more to reach customers vs. getting them to interact, e.g. awareness-driving channels (display advertising, social advertising, etc). Digital impressions represent the number of times a customer was served that placement; whereas, for non-digital placements like billboards or direct mail, ‘impressions’ can be considered number of walk-bys estimated in a given area or number of mail sends, respectively.
  • Efficacy (over efficiency) — Efficacy means ‘scalability’ and ‘efficiency’ combined. Don’t get pigeon-holed to talk about efficiency only (which means immediate return on investment). When it comes to things that are highly efficient, you’ll end up talking to a targeted few, e.g. the customers who are ready to convert, vs. the larger group of not-yet-ready customers who will be your future growth. Thus, when you add scale, you gain growth but lose efficiency. Efficiencies have a point of diminishing returns, aka at a certain point you can’t get any more efficient. Thus, focus the discussions with Finance on the ‘efficacy’ of your channels, campaigns, initiatives, especially around driving efficiencies at the beginning, then scaling to grow the business, and optimizing for better outcomes throughout. Make sure to define what would be considered ‘effective’ (e.g. use benchmarks).
  • Investment (over expenses) — You will have to justify every dollar you put into your initiatives, campaigns, agency fees, tech builds, etc. So, highlighting them as investments will help Finance understand that there will be payback in the future. Next step would be to explain and map out the payback and when you should expect impact on sales, customers, etc.
  • Life-time Value (LTV) — We, as marketers, know that not all customers are created equal. Some customers will keep coming back and purchasing the product/service while others are one-time trialers and may never come back. Calculating LTV per customer cohort will allow you to focus your marketing investments and energies on the types of customers that will truly help you grow. LTV is defined differently. Sometimes, you want to understand a life-time value of a customer, which takes into account the cost of acquiring this customer, their potential spend behavior with your business, and the cost of maintaining the business for this customer. Other people define LTV as incremental revenues generated in 365 days.
  • Marketing placement — A place (online or offline) where marketing can be shown to customers, e.g. email, company website, online advertising, search ad, billboard, podcast, etc.
  • Return on Investment (ROI) — You should define your ‘return’. Finance typically considers ‘return’ as revenues, so their ROI calculation may be revenues attributed to your marketing channel, initiative, program divided by marketing investment made for that channel, initiative, program over a set period. For example, if you ran a search campaign and invested $100,000 in search advertising and attributed $2,000,000 in revenues to the search channel within a 1-week period, then Finance’s calculation for ROI will be $2,000,000/$100,000 = 20x. You can define ROI in many ways, e.g. your ‘return’ could be number of hours saved on a project because you reduced manual inputs through automation.
  • Topline — This refers to the line at the top of your P&L, usually your revenues (or sales). The goal is to connect everything you do to topline because if your marketing channel, campaign, initiative isn’t impacting topline in some manner sometime in the future, then you’re likely not driving business priorities.

Key phrases to say to Finance partners

  • “My [marketing campaign, initiative] is estimated to drive X% of topline [sales, revenues, customers] in [time period].”
  • “Based on [research, data point], our customers take X [weeks, months] to go from being aware of our [product, service] to becoming a customer.”
  • “Our customers need to purchase with us at least X times in X [weeks, months] to have X% chance of staying a customer for the next X [weeks, months, years].”
  • “The customers acquired from this [channel, initiative, campaign] have a long-term value (LTV) of $X.”
  • “My [marketing campaign, initiative] acquires X customers by moving them from one part of the [customer decision, customer purchase] journey to the next.”
  • “My [marketing campaign, initiative] can increase [1-month, 3-month, 1-year] retention of customers [or reduce attrition] by X% due to [add reason].”

Related questions

  1. How is finance used in marketing? Believe it or not, there’s a ton of finance in marketing because you’re always answering questions like ‘what is the ROI or LTV for a marketing campaign/channel?’ or ‘which customers, acquired from which channels, have the best repeat rates?’ or ‘what is the trade-off between investing in driving awareness or immediate sales?’ Every step of the way, marketers need to tie what you’re doing to measurable results that eventually lead to topline or bottom-line growth.
  2. Do marketers need to know finance? Absolutely. You don’t need to be an expert financier but you should at least understand the P&L and how your efforts contribute to it.
  3. Can a finance major work in marketing? Absolutely. The best marketers are those with varying backgrounds. See Renaissance Marketer Mindset.
  4. Why finance and marketing is important? Marketing drives growth for the business but it comes with immediate expenses like advertising costs, human capital, production costs, etc. But without marketing, a business will become stagnant and revenues will decline over time. Thus, finance and marketing must work hand-in-hand to drive business success.
  5. How important is finance in marketing? Very important. Understanding the complete financial picture of the company can help marketers understand the cost of acquiring customers, the lifetime value of a customer, and what marketing activities drive what types of revenues at what points in time.

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