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How to Align Marketing and Finance for Peak Performance

John O’Rourke is Vice President of Strategic Marketing at Host Analytics. With a background in accounting and finance, John has over 30 years of experience in the software industry, including 20 years of experience in EPM Product Marketing at Hyperion Solutions, Oracle and Host Analytics.

While what goes on in Marketing has often been somewhat of a mystery to Finance executives, in recent years we’re seeing more collaboration and partnership between Finance and Marketing. Today’s strategic CFO wants to be seen as more than the office of “no” when engaging the CMO. So what’s the key to gaining better alignment between Finance and Marketing? To answer that question it is critical to understand exactly what CFOs expect from Marketing.

Annual Budgeting Expense Management Process

Let’s start with the annual budgeting and expense management process – what do CFOs expect from Marketing here?

1. Marketing budget must be aligned to financial targets set by the company. The CEO, CFO, and CMO should start by setting the overall level of Marketing spend based on historic spend or industry benchmarks.

2. The days of adding a line item called “Marketing” to a corporate budget are long gone. The CFO must have full visibility into the assumptions underlying the Marketing budget. They need to see how all major spending or program areas within Marketing contribute to the overall Marketing budget. Finance is also interested in knowing the return (ROI) from each marketing program.

3. Purchase orders should be set up so that invoices can be correctly matched to POs and tracked expenses can be allocated to the correct budget line item. This ensures that any “rogue” Marketing costs are identified, scrutinized, and allocated to the appropriate expense category.

4. Marketing should monitor program spend through the monthly reports provided by Finance and its own reporting mechanisms. Meet regularly with Finance to review and discuss actual spend vs. budget. More importantly, clearly communicate future spending plans and the timing of key Marketing investments that could impact cash flow and monthly/quarterly spending vs. budget.

Underlying all this work is the need for Marketing to understand the “matching principle” in Accounting. The matching principle is the concept of reporting expenses in the same period as the related revenues. This occurs through accounting techniques such as accruals (recording costs in advance of an invoice) and amortization, which is the process of spreading an invoiced expense over time, such as a 12-month analyst research contract.

Having the Right Tools Helps Align Finance and Marketing

The expectations the CFO has for Marketing might seem like a tall order, but they can be met with the right systems and tools in place.

For example, if an organization is managing its annual budgeting process via spreadsheets and email, it can certainly support the sharing of financial targets and the creation of Marketing budgets that align to those targets. But giving Finance full visibility into the underlying assumptions behind the Marketing budget will be limited with spreadsheets, and performing variance analysis on actual spending vs. budget will also be hindered. Cloud-based EPM (enterprise performance management) platforms offer budgeting and planning modules that let Finance do a better job of capturing the underlying details behind departmental budgets. EPMs, such as Host Analytics, provide Finance executives with full visibility into budgeting assumptions.

EPMs can also support regular reporting and analysis of actual spending against budgets and plans, as well as the rolling forecasts of spending in future periods. However, they were not designed to support the detailed program planning that most Marketing departments require.

This is where a purpose-built marketing performance management (MPM) solution, like Allocadia, can provide a great deal of value. MPMs take the concept of EPM and apply it to Marketing at a very granular level. They help Marketing departments develop plans and budgets, manage marketing investments, and measure results.

MPMs can also work hand-in-hand with EPM platforms and other systems to exchange data. They offer the capability to receive financial targets and export detailed Marketing budgets and spending information.

The Path to Peak Performance

Achieving peak performance in a medium- to large-sized enterprise is no easy task. You can try leaving it to luck, but the more proven approach to effective enterprise performance management is aligning strategies to plans and execution across the enterprise.

This requires that Finance is connected to all key functions and lines of business. And conversely, it requires that every function of the enterprise is aligned to Finance in terms of objectives, resource allocations, and spending plans.

Learn more about Financial Planning and Forecasting Best Practices by reading our white paper.