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Published in Business Intelligence

What Does the CFO of an Ad Agency do?

CFO
The chief financial officer role is constantly evolving. Technology and emerging marketing strategies have changed the game forever.

To begin with, we must understand how this position was traditionally seen and functioned in order to explain its evolution.

Project Management

What is a Chief Financial Officer?

It is the highest-ranking financial professional in an organization and is responsible for the fiscal health of the business, in other words, the financial management of your ad agency. Among their responsibilities, include, building a top-notch finance and accounting team, ensuring expenses and revenues stay balanced, overseeing FP&A (financial planning and analysis) functions, making recommendations on mergers and acquisitions, obtaining funding for ongoing and new businesses, working with department heads to analyze financial data and craft budgets for future investments, testing the accuracy of their financial reports and consulting with the board of directors and the CEO. CFOs are financial strategists, they trace a road map for your agency, and foresee the best way to go financially.

CFOs are true visionaries. There is no doubt why startups and small companies stakeholders are investing in their expertise. The global pandemic made the value of an experienced hand on the finance helm very evident. They have an eye for the future, work closely with the top leadership, and aren´t shy about recommending strategic moves.

CFO relationship with other core members of an Ad agency 

CEO and CFO work side by side and report directly to the board of directors, as we said earlier, serving as sounding boards, forecasting new strategies, and taking care of the risk management in the brand.

CPAs (certified public accountants) are financial controllers responsible for preparing financial reports and analyzing financial data. They are in charge of the accounting function in an advertising agency and report directly to the CFO. The chief financial officer team consists of bookkeepers, accounts receivable/payable clerks, payroll specialists, tax preparers, and accountants.

The CFO relies on the reports given by these actors in order to advise the CEO and the board of directors on the company’s strategic financial direction. The controller and the other specialists are in charge of satisfying the CFO needs in order to give good guidance to your ad agency.

COO (Chief operating officer) is responsible for the day-to-day operations of a marketing brand. These include all activities related to marketing, sales, production, and staff management. Referred also as senior vice president, they report to the CEO and often collaborate with the CFO to discuss the financial circumstances of the marketing company.

They may also help set technology direction, especially fintech, and make recommendations on everything: from supply chain to marketing based on their industry knowledge and fiscal insights.

 Some Key Takeaways…

  • CFOs are the leaders of your team that cover both finance and accountant and consist of senior management in these areas.
  • What informs the need for a CFO is the desire for a strategic adviser with a deep financial understanding.
  • In order to perform as a CFO it requires a background in accounting or finance and an advanced business degree, generally including an MBA. But it also takes plenty of other skills.

Breaking down the Financial Chief Role in an Ad Agency 

Overseeing the agency’s financial activities, including being responsible for the finance and accounting professionals who perform operational functions, and serving in a strategic advisory role for the CEO and the rest of the C-suite peers.

Reaching goals, meeting revenues, and keeping a stable cash flow are clearly on the CFO agenda. Finance chiefs also advise other department heads across the agency, assisting them in both maximizing revenues and controlling expenses without sacrificing customer needs or the reputation of the agency.

The CFO is also responsible for selecting new talents to gather up a finance team that is up to the task and works with other departments to allocate a budget for human capital management.

They need to interpret complex data given by many actors within the agency, put it into perspective, and help the CEO make good decisions financially wise, asking the following questions: Should we introduce this new service or product? What are the tax implications for our employees? Can we afford to on-shore our supply chain?

Project Profitability

Key Duties  of the Chief Financial Officer 

The main tasks of the CFO vary depending on the size of the agency, whether it is a public or private entity but generally they fall into the following responsibilities:

  • Forecasting

Most importantly, CFO not only reports what is – a significant part of their value to an organization is their ability to predict future outcomes. Of course, those outcomes include financial foreshadowing and modeling not only based on the past numbers of the agency but also on internal and external factors that may affect revenues and expenses. The CFO is tasked with interpreting data and making sense of the various departmental information given and creating profit projections for the CEO and the shareholders.

Internal factors may include labor and HR-related costs, sales trends, price of raw materials, and way more, while external data may include opportunity cost for capital, emerging competitors and analyzing their strategies, new advances in technologies, and how that impacts the software being used in the agency and shifts in market demand.

To be able to monitor what happens in the external environments, CFOs usually rely on data provided by the government, business, and general media, analyst firms supplemented with insight gleaned through trade and association memberships and the input of board members.

  • Liquidity 

Liquidity refers to an agency being able to pay off its short-term liabilities with readily and accessible funds. It is generally expressed as a percentage of what the company owes against what it owns.

CFO concerns are all about ensuring that client payments are made in full and on schedule as well as controlling expenses so that enough money is at hand to meet financial obligations.

  • Reporting

Financial reports include balance sheets and cash flow statements. They help both external stakeholders and internal leaders understand the financial state of the business, and it’s up to the chief financial officer to interpret these statements as accurate and in complete accordance with accounting principles.

  • Return on investment (ROI)

Part of a CFO strategic map focus on ensuring a strong return on investment. ROI measures the likelihood of receiving a return on dollars invested. As a whole, it looks at the gain or loss of an investment as a percentage of the cost.

Moreover, CFOs add context to evaluate whether an incoming project will deliver enough ROI to be worth the investment.

It is usually expressed as a percentage. While a high ROI is always welcome, it should always be used along with other metrics like cost per sale and overall conversions.

As financial strategists, CFOs should definitely consider metrics depending on their business goals in order for KPIs ( key performance indicators) to rise as ROI. These are valuable tools that, in hands of a good leader, can transform your agency and guide it to its goals. 

Weekly sales, customer attention, your provider’s efficiency, the number of likes on your Instagram or Facebook page, the number of clicks that the ads of your agency get, the time they spend browsing on your website, are just a few KPIs. But it’s important for your agency to keep things simple and focused on developing specific software to give an answer to specific problems.

Considering all of the above, here are 4 mainstream marketing metrics that serve as a foundation on which you can measure the success of your agency marketing campaigns and in return, you can see how well you are doing your job.

  • Total number of conversions 

The conversions are the visitors that convert into records for your marketing database and let you focus on what truly matters.

Without goals, you can´t see whether your visitors are responding to the desired CTA’s like buying something, subscribing to a service, filling out a form, downloading a brochure, or signing up for a newsletter.

You can either refer to the total amount of conversions or segment them according to the audience type to identify nuances in your customer behavior.

  • Reach & Engagement levels

Consider these two as the two major elements of the measuring process.

Let´s consider social media marketing metrics. Each platform has its own digital marketing metrics like Facebook Insights, YouTube, or Twitter analytics. Regardless of the way it is represented, the most important aspects to look at are these two. You can consider them as a measure of the health of your social media marketing profiles.

In terms of, are you being visible? And are your online communities interacting with your content? 

However, let’s be mindful that social media marketing metrics are easily accessible, trying to establish a correlation between the reach, engagement, and activity levels is vague and nonexistent. But since social media activity effectively provides a sturdy platform for business impact, monitoring it should be considered as an important rung in the ladder and not as complete evidence of success.

  •  Conversion rate by channel

As a marketer, it is imperative for you to identify which activity has the greatest impact on your ROI and sales. Measuring conversion rate by channel helps you calculate this.

To get accurate data on the best-performing channels, you need campaign tracking and Google’s campaign tracking tool simplifies the tracking of your online activity back to your site provided you use it well and consistently.

  • Cost per sale/acquisition 

If you start using campaign tracking, it gets easy for you to work out the cost per sale or acquisition (CPA). However, there may be times when it is confused with cost per conversion but there is a difference. Conversion is non-revenue based like filling out a form while acquisition is about a customer spending money on your product service.

A simple way to calculate CPA is to work out the average revenue per customer and from that pull out how much you’re spending on an average to capture a customer.

Time tracking & estimation

 Benefits of incorporating a CFO in your Ad agency 

 Chief financial officers guide their finance and accounting team and have a wide view of the agency’s financial health allowing the CEO and the rest of the C-suite to perform in a better way, being focused on their goals and operational issues. While the CEO and COO may have some background in finance or accounting, they don’t possess the same level of technical knowledge and experience as the CFO.

Moreover, a CFO can provide the following:

  • Leadership skills that allow them to gather a good finance and accounting team. They understand when the agency needs to add a staff of a certain area in order to comply with the agency’s needs.
  • Growth Experience obtained from helping previous employers expand on their business. They help find investments opportunities and use the agency capital wisely.
  • The industry knowledge enables it to juggle the competitors out of the grid and benchmark itself against its associates. Specialized expertise is key in framing KPIs and metrics for all kinds of companies.
  • Risk assessment and management in terms of regulatory compliance but also what may arise from poor financial management: liquidity, brittle supply chains, improperly hired contractors, and poorly implemented technology.

While at a first glance it may seem like an investment, actually hiring a CFO only means profits are waiting for you.

There is no wonder that CFO polls consistently show evolution in their role. Strategic planning and collaboration across all parts of the business are what drive success. Especially in small and midsize agencies. They tend to juggle too many responsibilities that not always are part of their area of expertise such as assessing cyber security risks, managing systems, and data integration, filling talent needs and evaluating the use of new technologies like Blockchain and AI. 

New kinds of knowledge are always piercing through the role of the chief financial officer. Let’s dive deep into the potential transformational effect marketing can have on finance effectiveness

 Marketing impact on the CFO Role in Advertising

Like every other discipline, marketing and advertising agencies have their own language, rules, culture, and norms. To contribute in a constructive fashion, CFOs should strive to understand various platforms and methods of media buying by reading marketing outlets, attending marketing conferences that cater to finance, and even considering taking marketing courses. This will empower CFOs in a better understanding of the agency business as a whole, seeing their marketing departments as collaborators, as both moves towards a solution that brings transparency to the supply chain and aims for a spending allocation that prioritizes high return on investment.

Once they can understand the language, CFOs can contribute by tapping into one of their strengths: monitoring. The CFO is uniquely positioned to set new reporting standards, hold teams responsible for financial goals, and demand transparency into advertising spending, as well as to ensure such monitoring is an ongoing process. When both marketing and finance are aware of all the listed above, companies can begin to craft plans to address knowledge gaps. They can reevaluate how to optimize marketing budgets. Additionally, marketers may be able to adjust in-flight campaigns to test different outcomes or drive better results. Incorporating financial media campaign tracking technology can ensure transparency and compliance in media spending, and unlock significant value. If CFOs do not have full transparency, they should be looking to incorporate these tools into their technology stack.

The role of the CFO has morphed, in the last 5 years, it has changed significantly. The fundamental purpose of finance leaders used to be counting, controlling, and reporting cash flow. While there is still a broad range of job descriptions, the traditional position of the spreadsheet jockey only focussed on historical datasets is for the most part extinct. This impacts directly on the areas of major relevance to the CMO: strategy, data, digital marketing, and pricing.

Several of the functions that marketing needs to impact or influence for better customer service and product development, now fall under the CFO  management team, so a healthy relationship between these two can be very valuable to effect or speed up change in the decision making. Although CFOs now control many of the levers, few members inside the organization can create value the way marketers can.

Project Profitability

More than half of the CFO functions or finance functions are at the forefront of digitalization, whether it is automation, analytics, robotic processes, or data visualization. Marketing’s focus is also on future revenue. But marketers are externally focused and as a result, they tend to have a better view of these two areas: the external market as a whole and, critically, the customer. This customer understanding should enable marketers to unify and focus efforts across the organization, as well as those of finance.

While the relationship between marketing and finance has traditionally been strained, their departments have always been held separate – they think and behave very differently. Marketers are driven by creativity and brainstorming while financial people are compelled by numbers and budgets. While both departments have the company’s best interest at heart, they see business in very different ways.

In the past, there was a combative tug of war between the two departments with Marketing spending money while Finance trying to cut out costs. Fortunately, this relationship is evolving into a more symbiotic relationship where both departments work together to achieve a common goal.

To make this relationship work, the marketing department takes on the responsibility of managing and developing the growth of the business while the finance department works closely with marketing to monitor trends in the business as well as manage the efficiency of marketing initiatives. Marketing needs finance now more than ever. From a marketing point of view, here are 3 ways in which the relationship with the financial department can be improved:

  • Communication is key

The perception is that marketing is always going to ask for more money and Finance is always going to cut the budget without taking the reasons for spending into account. Regular meetings between the two departments are needed to negotiate and discuss expenses and budgets in alignment with company goals.

  • Share the success

When Finance sees a large expense, without knowing anything about it, they are going to want to cut back on spending. That’s their job. Those in Marketing must take the time to explain why the funds are needed and how it will benefit the business. Both departments need to be willing to compromise to it.

  • Think alike

As a marketer, research how much a project will cost before presenting it to Finance. That way Finance is not handing marketing their numbers, Marketing is handing in their own numbers. This will make the negotiation process a lot faster and easier. 

All these changes have created new alignments in the roles of marketing and finance with significant opportunities for collaboration and alliance. If marketing and finance teams work together on extending a brand or creating a different brand for a new target segment, the outcome could include risk assessment, the effect of different pricing structures on cash flow, as well as revenue, and profitability. Similarly, a joint team could assess a customer journey analysis using complementary data skills, establish where to improve margin without sacrificing customer satisfaction.

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