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Behind Closed Doors: The CMO and CFO conversation


CMO: if you want me to hit a 2 ROAS, or a 20 ROAS, i can do that. 



CFO: wtf do you mean?



CMO: i can toggle 3 big things and get you whatever number you want. if i spend more on retargeting or brand keywords, run discount sales, or reduce spend, I can drive ROAS to the moon.



CFO: go on...



CMO: the problem is that we have not evolved from the early days when we had existing untapped demand. that's why we started the business in the first place. there was demand for a product that didn't yet exist in the market. therefore, every dollar we spent was both high-ROAS AND driving incremental revenue 



CFO: i'm starting to follow 



CMO: but as we've grown, we've exhausted that group's revenue. We haven't started generating new demand. What got us here won't get us where we need to go.



CFO: but we need a number showing how our investments are driving increased profitable growth



CMO: i get it, but if we're using ROAS as THE tier-1 metric, our team will be incentivized to do things that have the opposite impact



CFO: i'm back to not following



CMO: ROAS as the only metric will drive the human tendency to do 3 things: pull back spend on low ROAS, but high-incrementality (driving purchases that would not have happened without this spend) investments, over-spend on high-ROAS low-incrementality tactics like retargeting or brand keywords, and prioritize messaging, creative and sending traffic to discount collections.



CFO: ok, that's making sense



CMO: so our new customer cohorts will shrink, and a larger percentage of that cohort will be acquired on discount. because our forecasts have increasing pressure on repeat revenue, we'll push harder to get more revenue sooner from these cohorts. but because there are fewer customers, and they're lower LTV to begin with, we won't be able to hit our forecast without further discounting to drive them to purchase. you can see how this doesn't end well.



CFO: gotcha. so you're saying focusing on ROAS alone makes us do things that actually slow our growth while simultaneously reducing our margin? 



CMO: yes. clearly we need to run promotions sometimes, and there's some amount of retargeting that makes sense. but ROAS is an "efficiency" metric. we need an "effectiveness" metric to balance it out. sure, we can use number of new customers, but that doesn't tell us about customer quality



CFO: so lemme see if I'm pickin' up what you're puttin down. Putting too much focus on efficiency metric like ROAS will incentivize team behaviors counter to our long term goals. therefore, we need a metric that represents the total amount of growth (AKA "effectiveness"), BUT, it has to represent long term customer quality, not just new customers, like total 180-day contribution LTV dollars from full-price customers acquired



CMO: (floored) you're my hero



CFO: not all heroes wear capes




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