Five Ideas Marketers Can Use to Persuade CFOs

Earlier this week, in conjunction with WOBI’s World Business Forum event in Bogotá, I made a separate presentation to a major financial accounting firm and a number of its clients. I began my talk with an introduction to customer-centric business competition, and what it takes to manage a business based on improving the customer experience.

But because this was a “side audience” of financial and accounting professionals, I spent the bulk of my time discussing one of the most difficult internal obstacles that marketers face in trying to improve the customer experience: the difficulty of using financial metrics to try to evaluate the actual economics of a marketing initiative. It costs real money to improve the customer experience – money that has to be spent in the current period. So the question is:

How much profit will the business get in the future, for the money it must spend now?

In 2005 Martha Rogers and I published an entire book about this problem, Return on Customer: Creating Maximum Value From Your Scarcest Resource. In it we argued that because the financial value of a customer is “customer lifetime value” (LTV), if a business wants to evaluate the true economic effect of its marketing initiative then it should not just tabulate current-period profit, but also whatever change in lifetime value results from the initiative, positive or negative. We then went on to suggest that in a data-rich environment such changes in lifetime value will be signaled in advance by what we called “leading indicators of LTV change.”

So after I covered these points in my talk to the financial executives and emphasized the overriding importance of collecting customer-specific data, I shared five actions marketers can take to help bridge the metrics divide that often separates them from the financial types who approve marketing budgets (and by implication, financial executives can suggest these actions to marketers, as well):

1. Do an A/B test whenever appropriate. Technology allows us to treat different customers differently, so test your idea on a small sample of your customers rather than rolling the dice on a big gamble.
2. Agree on some reasonable lifetime value figures for different types and categories of customers. Obviously, the more data you have the better, but even with little data you can form a hypothesis. And if it’s a reasonable enough hypothesis that your CFO can agree on its likelihood, then it will provide a basis for a financial discussion.
3. Identify in advance at least a few of the major “leading indicators” of lifetime value change (account penetration, churn rate, etc.).
4. Track customer satisfaction carefully and professionally, as an important leading indicator of LTV change.
5. Agree in advance on a “financial exchange rate” between marketing outcome and economic value delivered. For instance, an improvement in NPS of X% (relative to your competitors) is worth a Y% improvement in customer lifetime value.