Investing in hiring a CFO in COR’s day-to-day can only lead to better outcomes and a wide improvement in performance.
When businesses are starting to grow, board managers must accompany that process by enhancing the performance rate. To begin with that transformation, large-scale efforts must be done throughout the whole company, challenging every decision-making fundamental of every layer of COR. This includes the basic processes in everything from production and sales, purchasing, HR, and marketing. The benefits will be directly seen in future earnings, they can increase as much as 25 percent or more.
Given the seriousness of that change, this would seem like an ideal opportunity for the CFO to step in and play a major role, after all, they are already familiarized with many activities and initiatives that underline some kind of transformation. The way it is handled usually takes the CEO as captain of the boat, then a full-time executive assumes operational control initiatives, and individual business units take the lead on their own performances.
We already know how strategic decisions from the CFO leadership benefit ad agencies. Metrics such as performance efforts will lack meaningful benchmarks to measure success, the board of directors will be tempted to focus on the most visible project instead of going for the one with the most value, and expected transformations won’t reach their goals. Financial planning from the CFO becomes crucial and they need to step up and plan a broader role, one that includes the modeling of desired mindsets and behaviors in transforming the finance function itself.
Ways of creating value
Forecasting which projects will create the most income can be challenging as well as setting priorities. It’s not strange to see good ideas languish because they were undervalued by the chief executive officer and the rest of the c-suite while financial managers direct resources to overvalued initiatives instead.
Valuing such initiatives requires deep thinking. Although some transformations imply radical changes, most create significant improvements on the margin of existing operations. That requires an understanding of the costs and benefits of the business model that is being produced, that being a product or a service. When managers have an understanding of the marginal value of improving each of the activities that contribute to performance, future growth is assured and the potential to lead an entire transformation is at hand.
In COR, emphasizing accounting profits can lead CFO’s financial resources on actions that drive annual or quarterly earnings. A high-pressure transformation environment, where managers are held accountable for delivering stretch targets, can exacerbate this tendency. Finance forms and the financial position are important lines of defense. CFOs can verify that the improvement of corporate strategies and initiatives aren’t simply cutting investment in tomorrow’s performances to boost today’s numbers. These finance leaders also check for noncash improvements that show up on the profit and loss statement but don´t actually create value. Instead, they can highlight cash improvements, such as reducing working capital that add real value but don’t affect the profile and loss parameter.
Make certain that benefits fall to the bottom line
Regularly, unexpected initiatives that could create great value, never get to COR’s bottom line. Sometimes, the problem is just poor execution. Some other times, the problem is the lack of visibility of the expectations and little coordination between their units and functions. As a result of this, savings accumulated in one part of the business are offset in the expenses by another.
Finance specialists can benefit from COR by reviewing how a company reports progress and ensuring that objectives are being met. This can include, for example, ensuring that transformation priorities are translated into formal budget commitments. It also includes translating traditional P&L accounts, such as cost of goods sold and overheads, into the underlying measures that affect their value, such as volume, foreign expense rates, headcount, and productivity. That offers managers a much clearer understanding of how value is created.
Creating meaningful insights with a good financial officer can be challenging. Since performance across such businesses isn’t readily apparent from their consolidated accounting statements, it’s all the more difficult to understand whether a transformation is effective. COR provides these reports to the CFO and his finance team and they help by disaggregating the business into multiple agencies. Using this financial information given by COR, strategists can transfer pricing between those agencies.
Senior management continues to produce consolidated reports for external stakeholders and by using internal reports, understand how valuation is created, and benefit from this information provided by COR by enabling them to identify more opportunities and turn them to profit.
Leading by example
Helping managers clarify the value of initiatives is just the start of the CFO’s and finance function’s contribution. Just as important is how finance works internally. A finance function that innovates and stretches towards the same level of aspirational goals as the rest of the organization adds its credibility and influence.
Leading by example is showing the rest about the desired behavior. By taking a pragmatic view of the level of detail and rigor needed to make good decisions in the finance function as well. Today’s CFOs can set an example of good behavior to the rest of the company. For example, the CFO role-modeled a bias for action by drastically simplifying the valuation assumptions for initiatives. That enabled the operation’s leaders to focus on execution. Even though the value of these initiatives was potentially overstated, it was clear that corporate finance was focused on the right improvement areas.
But leading is also taking into account risk management, reducing costs while increasing efficiency and effectiveness. COR initiatives automate timesheets, predict profitability, reduce work overload, and improve client engagements, consequently, it streamlines activities, and cut costs inside finance, all being key assets for every CFO. CFOsimplify processes and eliminates layers of approval or redundant financial reports.
In the hypothetical case of COR, this experience is very frequent among this company and other marketing and agencies in general. After reviewing its accounting entries journal, the finance team realized that more than half of the processes were unnecessary and introduced new guidelines to reduce the workload. From the information provided by COR, the CFO and his finance team also found out that managers were using different kinds of reports to assess the performance of what was essentially a single business unit. Not only did different layers of the C . suite have a different view on how to measure performance, but also, the agency was using entirely different reports to explain results and manage their activities. After leading a healthy debate on how to define a consistent view of assessing performance, COR provided this information so the CFO could set up a common and cohesive approach for the entire agency by cutting reporting activity.
Finally, stronger financial controls inside the function can help quickly reduce cost organization, particularly where cash flow is short. Finance might, for example, lower the threshold at which purchases require approval, cancel credit cards, or even close open purchase orders. Such moves can be seen as unpopular, and managers can spend weeks, even months, whether they’ll improve performance or hurt productivity and employee morale. But how successful they are often comes down to the ability and conviction of leaders to strike a balance between management and empowerment. The finance function is well placed to address organizational resistance, given its practical knowledge of financial systems and controls. It can also provide a credible independent perspective in setting an appropriate level of management.
COR can help the CFO and his finance team to successfully deliver on the full potential of transformation within the agency. To do so, they must be judicious about which activities truly add value and embrace their roles in leading the improvement in both performance and health.
The need for more strategic leadership
Top executives acknowledge the value that finance chiefs bring to their agencies, and CFOs themselves agree. In the matter of finance, both groups agree that CFOs are very involved members of their teams. They also agree that CFOs should spend more time as strategic leaders in the years to come.
Faced with advances in technology and growing responsibilities, many Chief Financial Officers are bracing themselves for more changes in their roles. Finance leaders report that there are new demands on their time schedules, such as digitizing critical business activities and managing cybersecurity, in addition to managing their traditional financial duties. While these new challenges and new responsibilities might lead CFOs to differentiate from their competitors, some other agencies believe they are not prepared to manage those challenges.
Most CFOs acknowledge that it is no longer sufficient to play their traditional role. They must build skills in other areas of business, play a more active role in leadership, and rethink their usual approach to problematics, external pressures, and finding new investment opportunities.
As the CFO’s role evolves, so are the expectations of other agencies’ leaders. Not surprisingly then, CFOs perceive some of their contributions differently than do others in the C-suite. Most of the top executives agree that their CFOs are the most involved in bringing financial expertise to the table, focusing group discussions on the creation of value, and serving as the executive team’s public face to financial stakeholders. For activities beyond finance, there’s a gap between the leadership of the CFOs that are significantly involved or the most involved executives in allocating employees and financial resources. They rate the performance of their finance functions differently than their fellow executives. CFOs are more likely to cite a lack of resources and skill as barriers to effective finance function performance, others in the C – suite most often identify a lack of innovation mindsets.
The evolving role of a CFO and COR conveniences to them
In the world of digital transformation, it is increasingly important that the CFO understands the power of marketing as a growth driver, not as a cost center. And that means they need to be in sync with the CMO.
As marketing becomes more about lifetime customer value, CMOs need time and agility to succeed, and with CFOs at their side, this becomes possible. Together, this duo can make the case for the investments needed to allow for maximum growth and innovation.
It’s an old trope that marketers are fuzzy-headed creatives and the finance team is a bunch of bean counters, one is a cost center, and the other one a cost container. In today’s world, they understand the value of another’s roles, as well as the role of performance marketing in driving everything from brand growth to sales ROI.
From strategy to execution, for both short-range and long-range planning, COR needs to give these benefits to a CFO, to provide him with insight from the marketing world point of view.
Together they can achieve exponential results, driving maximum impact on value and sales. A strategic alignment is fundamental, the real value is in the long game.
Digital marketing is measurable, accountable, and predictable: key fundamentals in the CFO’s role. Having these aligned unlocks funds and is the catalyst for digital transformation, empowering the CMO and other members of the C-suite to make bolder decisions.
A close partnership between the finance team and data analysts is the pillar of building a solid campaign strategy. This allows for quick decision-making on how investment should grow as programs scale. The team aligns on performance expectations and builds systematic test plans, which enables them to take advantage of the rapidly changing eCommerce landscape. This allows allocating of budget more efficiently on channels driving the most incremental value on ongoing business.
By incrementing testing, it enables COR to scale nonbrand SEM (search engine marketing), a digital marketing strategy used to increase the visibility of a website in search engine result pages, and social efforts, effectively are uncovering any additional growth tactics that this attribution model might miss. By suppressing ad spending in specific test geographies, COR can measure the uplift and define a true incremental value of that media. None of this can happen without an agile CMO/CFO relationship. All of this stuff happens behind the scenes but that ultimately contributes to successful campaigns.
The chief financial officer is increasingly evolving into a chief revenue officer, not simply forecasting revenues but helping decide how to grow them. In other words, both are accountable for converting the company´s actions into predictable and scalable revenue through the right media mix model.
The truth is indiscriminately capping the digital marketing budget need to be a thing of the past. Why would you ever set a cap on your revenue or growth?
The CFO has to understand marketing, the CMO has to understand finance and everyone has to understand data. Working as partners, they will not only be the most powerful duo at COR. Theirs will be the brand that thrives and bring success.
With everything said about the importance of a CFO to know about marketing, COR predicts profitability on developing projects, it helps reduce unnecessary workloads and accomplish deadlines on time, all necessary tools that today’s CFOs need to adjust to new requirements.
Three Digital Marketing strategies that can benefit a CFO
When you already know the value of a lead or sale, it’s important to know where every sale you drive comes from.
“Attribution” is digital advertising speak for “ what brought the customer here?” If a customer clicked on a Google pay-per-click ad that brought them to your site and then bought something, that sale would probably be attributed to your Google pay-per-click ads.
We highlight the word “probably” because it can get more complicated. What happens if a customer clicked a Facebook ad two days ago, browsed your site, and left without making a purchase, but then clicked on a Google ad today and made a $100 purchase? How much of that sale do you attribute to Google? How much to Facebook?
The answer will depend on what’s called your “attribution model”. There are hundreds to choose from, but it’s basically how much “ credit” you give to each piece of advertising that a customer encounters on their way towards a sale.
Tools like Google Analytics can let you choose from a list of standard attribution models. Once you reach a decent scale, it´s probably worth implementing more complex software that’s tied directly to your ad platforms and that does this on your behalf.
Calculate your ROAS
The sales or leads that each platform generates.
That lets you put it all together and get a really clear picture of the value you’re delivering with your ROAS. ROAS stands for “return on advertising spend”. It might sound complex, but it’s not that complicated really. Plus, CFOs go nuts for acronyms.
The goal here is to tie the sales or leads driven by every type of advertising you do with the amount of money you spent on that type of advertising. The formula would be:
(Per-Platform Revenue) / (Per-Platform Cost) = (Per-Platform ROAS)
So to clarify this, if you spent $50.000 on Facebook advertising, and drove $50.000 in profits, you have a ROAS of 100% for Facebook.
If you sent $50.000 to Google and drove $100.000 in profits, you have a ROAS of 200% for Google. Obviously, above 100% and you are making money; below 100% and you’re losing it.
It´s important to note whether you’re calculating your ROAS on profit or revenue. Calculating ROAS on revenue is much more common, but then you’ve got an additional step of adding in your profit margins later on. It’s better to calculate the ROAS on profit from the get-go; this enables you to have that data available and front-of-mind for every decision you make related to your digital ad spend.
Either way, understanding your per-platform ROAS lets you optimize for the most effective platform or combination of platforms.
Once that is figured out, you can use essentially the same formula to calculate your overall digital advertising ROAS. And now you´re ready to impress your CFO.
Make your CFO love you
With these numbers in hand, as COR you can pretty easily understand whether your advertising is working or not. If you have a ROAS of under 100% you’re losing money. Over, and you’re driving profit for your agency.
While ROAS is a common term in advertising, return of investment (ROI) might be even simpler for your CFO to understand. How many Argentine pesos or dollars in profit are you generating for every money spent on digital marketing? A ROAS of 100% is the same as a 1:1 profit spend ratio. A ROAS of 400% is the same as a 4:1 spend ratio.
By knowing this, COR can benefit a CFO by saying things like “For every $1 you give me in ad spend, I can create $4 in profit”. Any CFO will lend you an ear when they hear these words because they are generally his.
So what are you waiting for? Get ready to make your CFO your digital marketing budget’s best ally.
As COR automates time recording with Artificial Intelligence to predict project profitability, reduce work overload and meet deadlines, we can ensure this benefits any CFO in optimizing his job and having a better performance by being provided this information.
We´ve been saying how important is to understand that both the marketing and finance worlds must coexist to bring better numbers to any agency. As for what COR stands for, there is no way a CFO can lose.