Marketing and finance: bridging the gap

Establishing common definitions and employing visualizations to communicate data can help departments gain a better understanding of the metrics that matter.

By Jeremy Foster

Banks are more effective when departments work together toward common goals. While there are many articles, podcasts, etc. that talk about aligning teams, too many banks overlook disconnects that impeded achieving such a shared vision. Departments that are aligned around a vision and working toward common goals often don’t work as well together as they should, because they are using different languages and tracking progress toward goals differently.

Establishing common definitions and employing visualizations to communicate data can help departments gain a better understanding of the metrics that matter resulting in better collaboration and more effective decision-making. In this article, we will explore the power of aligning marketing and finance and look at some key metrics that can be used to help both departments work towards common goals.

The disconnect between marketing and finance

Marketing and finance are are notorious for their inability to communicate in many organizations. Traditionally, marketing has been viewed as a cost center, with little visibility into the ROI of campaigns. This often leads to tension between the marketing and finance departments, as finance is responsible for managing costs and ensuring profitability while marketing is focused on generating loans or growing deposits. Pressure for both departments to drive immediate results can sometimes lead either or both to sacrifice the organization’s long-term goals, even when both groups agree on what the long-term vision is. For example, if the bank is focused on growth, marketing may be emphasizing brand recognition and customer reach while finance is focused on increasing revenue. If the bank is focused on profitability, finance may be cutting budgets that the marketing department can actually use to generate profitability in the same year. These disconnects between the tactics and definitions of success used by each department can lead to inefficiencies, misaligned objectives and missed opportunities.

The power of a common language

The use of common terms and key performance indicators can help to bridge the gap between marketing and finance by making complex financial data easily understandable and actionable. By sharing data in a clear and concise way, multiple departments can gain a better understanding of the goals that matter to each other, leading to more informed decision-making and better collaboration.

For example, lifetime value, customer acquisition cost and total addressable market can all be tracked to provide insights that are useful to multiple departments. By breaking down these metrics into visual representations, such as charts, graphs and heat maps, banks can gain a deeper understanding of their customer bases and the impact of their marketing efforts.

Lifetime value

Lifetime value is a key metric that is used by both finance and marketing departments. By visualizing this data, businesses can identify patterns in customer behavior that allow them to make strategic decisions. At its simplest level, if the lifetime value of customers acquired through a certain marketing channel is higher than the cost of acquiring them, it may make sense to invest more resources in that channel.

Understanding lifetime value can also help banks identify their most valuable customers and tailor marketing campaigns to their needs. Better understanding of the sources of profitability and risk represented by customers can help marketing departments create targeted campaigns that resonate with their most profitable customers, and enable finance departments to better understand the opportunity and risk represented by concentration of specific customers.

Banking is one of the most complicated industries in which to measure consumer lifetime value, for several reasons. First, bank customers commonly have more than one product relationship with a specific bank—checking and savings accounts, mortgages, auto loans, etc. Checking accounts are often the centerpiece of a consumer-focused strategy (and usually should be, given that surveys have found customers tend to stick with their checking account for 15-20 years). But products such as mortgages are often more meaningful sources of profitability. Second, consumers may have the same product relationships across multiple banks. Several surveys have found that approximately 50 percent of customers have checking accounts at multiple institutions. Finally, because risk varies over time, interest rates also vary at different maturities or terms.

These factors can complicate pricing, leading banks who do not utilize funds transfer pricing or similar tools to mismanage risk. Larger banks often have relationship pricing modules, but many smaller l throw up their hands at the complexity and avoid measuring lifetime value at all. This is unfortunate, because there are some simple measurements that can provide valuable insight into lifetime value, even for banks who can’t afford the precision that comes with customer pricing and profitability modules.

Customer acquisition cost

Customer acquisition cost is another metric that is critical for both departments. By visualizing this data, businesses can better understand the costs associated with acquiring new customers. This information can then be used to optimize marketing campaigns and drive down costs. By breaking down customer acquisition cost by channel, banks can identify the most cost-effective channels and campaigns and allocate resources accordingly.

Visualizing customer acquisition cost can also help businesses identify areas where costs can be reduced. For example, if the cost of acquiring customers through social media is significantly higher than through other channels, banks may consider reducing their social media advertising spend. Similarly, if search engine marketing has been more successful at growing deposits than loans in one market and vice versa in another, reallocating marketing budgets to allow for better outcomes in each branch (and adjusting the deposit and loan growth goals for those branches to match) can make the marketing team and the branch managers more successful. Often while generating a higher return on investment for the bank.

Total addressable market

Finally, total addressable market is another metric that is useful to provide insights to both departments. For example, if a bank is considering expansion into a nearby community, it’s important for both marketing and finance to understand the number of customers in that market, the ease or difficulty in getting those customers to change their banking relationships, the products that are likely to be adopted in that community and the marketing budgets that will be required to succeed. Preferably before buying the land and hiring contractors.

Finance is the language of business, and it’s important for people to talk

Banks are built on relationships, both with their customers and internally. It’s often too easy for finance departments to allow their interactions to boil down to budgets and goals that are distributed via spreadsheet once a year. And it can be equally easy for bank marketing departments to focus on subjective measures such as whether a campaign or product “feels right.”. The best cure for both of those errors is frequent, rich conversations objectively informed by data between the departments. Finance teams can gain more understanding of a bank’s most important asset–its customers—from the nuance and context provided by the marketing team, and marketing professionals will be more successful when they approach their work from the context of a bank’s long-term financial and strategic objectives.

Jeremy Foster led retail banking, marketing and operations for a $500 million community bank . He is currently using his 20 years of experience in banking and financial technology as the chairman of Calque, Inc., a marketing and technology company that helps community lenders originate more mortgage loans by eliminating home purchase contingencies for their customers.