CRO vs. CFO - How to Build a Virtuous Relationship

Meet Host, Mary Grothe

Mary Grothe is a former #1 MidMarket B2B Sales Rep who after selling millions and breaking multiple records, formed House of Revenue®, a Denver-based firm of fractional Revenue Leaders who currently lead the marketing, sales, customer success, and RevOps departments for 10 companies nationwide. In the past year, they've helped multiple 2nd stage growth companies between $5M - $20M, on average, double their MRR within 10 months, resulting in an average ROI of 1,454% and an average annual revenue growth eclipsing $3.2 million.

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Mary Grothe: Hey everyone, this is Mary Grothe - Founder and CEO - and you're listening to the Revenue Radio® podcast brought to you by House of Revenue®. Each week, we'll talk about common revenue challenges and how to get past them, share real-world experiences, and get a glimpse into my life as a CEO scaling my own business. If you're a struggling entrepreneur, or just an entrepreneur looking to be inspired, this podcast is for you. I'll give you honest, unfiltered, and practical insights into growing your business and getting past your revenue plateau.

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Today, we will be diving into the CFO and the CRO relationship. Brad Hendrickson, on our team at House of Revenue®, wrote an article about the relationship between CFOs and CROs, and it inspired me to give my own take on this today and how I see this relationship evolving inside of organizations. Go read Brad's article, here. It's a great piece.

I'm going to share with you my perspective today. It all started with Saleshacker. Many of you know that platform, that community. I was invited to be on their podcast in December of 2020. It was the first time that, without prompt, I started to explain from a CRO seat how I thought it related to the CFO seat. Apparently, that caught a lot of press. People were coming into my DMs and saying I never knew a CRO should be so financially savvy. I didn't realize that was a new concept and a misunderstood concept. I thought everybody realized that a CRO had to know numbers, that they were responsible for their part of the P&L, truly understanding revenue economics and building out revenue pro forma.

After that episode aired, it was really eye-opening how many people felt inspired to build a better relationship with their CFO. Well, fast forward, I had the pleasure and privilege again of serving with Saleshacker on a panel in early 2022. One of the most brilliant CROs I've ever met, financially speaking, on the panel. He was dropping the best knowledge bombs about finance that I've ever heard a CRO discuss. He had a full mathematical equation for the full revenue funnel across every marketing tactic, every tactic for brand awareness, the expense of everything. It was impressive to hear him speak in such pristine financial terms.

They did brand marketing and sales. They had the best revenue attribution reporting. He explained everything and then discussed how he earned so much trust from the finance team. He was helping to shape the model for the entire company based on his plan. That's the first time I've seen someone step so powerfully into the CRO seat from a financial perspective. I was pretty blown away. At that point, I realized I had pretty entry-level knowledge of finance.

I always make a joke that I can't do basic math. I think I just second guess because I've relied on a calculator for so long. But I loved math growing up. It was my favorite subject in school, far better than reading. I like black and white, equations, numbers, and being able to solve complex problems with data. I've always been that way. Well, it doesn't hurt that as an entrepreneur and CEO. I also know my numbers. How often have I talked about this on this podcast? Know your numbers. There are at least three episodes dedicated to understanding your numbers as a CEO.

I want to switch to a CRO perspective and that relationship with the CFO, especially in small companies. The two cannot work in opposition. Do you hear me? They're not enemies. CRO and CFO need to be best friends. The growth plan relies on the CFOs ability to say yes. The CFO will not say yes to a pieced-together plan not based on data.

Here's how I believe that the CRO and CFO can work together. There's typically a point of contention with the CFO authorizing spending budget and money that didn't perform. They approve money for ad spending, go up in headcount, and budget for new technology, but they didn't see the promised return. If there is past negative performance, that first has to be addressed with the CFO by the CRO - an open, honest, transparent conversation. Before you, there may have been CROs that didn't fulfill expectations on the budget they requested. They didn't hit the plan. Therefore, the budget wasn't profitable or successful. Some budgets don't have profit built into them just based on the stage of the company.

Step number one, you need to sit down with the CFO. That's their job as a CFO to have accurate numbers and predict projections to help the company make data-driven financial decisions for the betterment of everybody involved. You need to have an honest, open conversation about the CFOs' perception of the revenue departments, expenses, and performance. Start there. Get everything out on the table. Empathetically understand the CFOs' problems and challenges in areas where they've been burned. If you can empathetically align, you're sharing in the emotion and genuinely understanding the pain and impact.

The most essential asset in a company is the people. Typically, functions like HR and operations circle around the CFO. If the CRO can't perform on the plan, that's a big issue. It usually then hits the CFO directly. Then, the CFO is responsible for the weight of the revenue plan not being achieved. The relationship between the CRO and CFO should be a top priority, and it's often so overlooked. Step one, allow the CFO to talk, share, be open, don't get defensive, don't rush to conclusions, don't try to solve all the problems, just listen. Then, take turns.

Next, it's time for the CRO. If you were the one in the seat who caused the plan to fail or underperform. You ask for one thing, then you ask for it again. Then, you ask for another. You couldn't be consistent in like, "This is my ask, now let me perform." You're always asking for more. Whatever it is, just take a moment to respond from your seat, not in a defensive, vulnerable, and empathetic manner.

Let me just explain what transpired. This is another piece to understand. Try to remove some of the emotion from it. Stay factual. CROs and CFOs typically have different personalities. Typically, a finance-driven analytical isn't high on the relationship emotional side of the scale. They're very black and white, data-driven, analytical, and can make decisions based on processing numbers, not necessarily emotions or relationships. They need the data, and they need to be given space to process.

Whereas a CRO is typically high-driver and influential. They're going to be more on the relationship side. They may have come up the sales rank, so they might be good at that conviction, passion, and enthusiasm. They're really persuasive, outgoing, and care about friendship. You put those two people together. It could be oil and water. You have to be super careful to suppress a little bit of that passionate personality on both sides and just have a minimal conversation.

The CRO should have an opportunity to discuss what didn't go well, didn't go right, and didn't go according to plan. Explain some of the variables that are difficult to control, like salespeople. Can we just say salespeople are difficult to control? You're never always a top performer. One day, you just got into a bad mood. You can have a bad mood for like three months. That happened to me when I was selling at Paychex. I was fed up. I came back to the company in 2014 after a three-year break. I came out guns-a-blazing. I built a massive pipeline super fast. I sold a lot of business in anticipation of January when we do most of the business at Paychex.

Every implementation had errors and a brand-new technology platform. There's no shade here being thrown at my operations counterpart. They were expected to do the impossible, learn new technology without training, and onboard a slew of customers way past their capacity. They were working insanely long hours and underpaid. It was just a disaster. I was so mad at how many deals were messed up and implemented, which cost me a commission and my number when I had done all the things right, at least I thought I did.

I was let down and got in a bad mood for three months. I was a top rep, and my performance just plummeted. My manager finally said, "We're not paying you a base salary for you to be in a bad mood. So make a decision, quit or turn it back on and figure it out." Even the best salespeople can get in a bad mood. That's a variable that can be difficult. I'm just sharing that as an example.

There are also marketing campaigns. What about if you went to your CFO last year and you ask for a specific budget around Google. We all know that everything shifted the privacy policy changes in the iOS 14. The way campaigns have been done in the past is like the rug was pulled out from underneath people. The cost per lead and conversion skyrocketed. The conversions plummeted. The quality of leads decreased without insight into consumers who wanted to buy that product or service. Of course, it just was deemed to violate privacy law. So what happened? The CRO may have had things outside their control that caused the plan to not be hit or achieved. Empathetically allowing these two people to just get back at square one, understand what happened, and where they can go from there. That's number one.

Number two is to create a data-driven plan. Nothing drives me crazier or crazier than, "Oh, we'd like to grow 20% this year." Great. Where did that number come from? "I don't know. It just sounds like a good number." Then, it was responsible for "It just sounds like a good number." Come on, people. Sounds like the worst way to grow a company with an arbitrary growth number. Roll up your sleeves, get in the Excel, get in the spreadsheet, look at the data, and figure it out. Come up with a meaningful growth number with a ramp attached to it - an increase in overhead, expense of a new automation tool, or whatever. What is the growth going to cost? Then, yield in a model 20% year over year.

Sometimes you actually have to spend money to make money. You've heard that right. If we want to grow 20%, here's the question: what do we have to do differently than what we did this year to do 20% more next year? What we have to do differently probably costs money. I'm just going to throw that out there. Sometimes they say, "Well, we want to grow 20%." What are you willing to spend to grow 20%? Are you looking at increasing 20% top-line or bottom line?

By what point are you willing to be flat? Are we are you ready to take a loss for three months to build the infrastructure, acquire the new technology, and go up in headcount to get the 20% growth by the end of the year? Are you willing to go down for a quarter, then be flat for a quarter, then scale, and peak in the fourth quarter? Are you ready to do that? The CRO and CFO must clearly understand what it will take month-by-month expenses to generate additional revenue, laying that out in a model.

You can have a pro forma or revenue economics showing the month-by-month expense in revenue that we think we can get due to that expense. If you're going up on headcount, you might have recruiter fees. You're paying for a new website if you're doing a new brand, refresh, or brand launch. You've got costs for a creative team. Plus, you just have a time that will not be expressed in the model. You'll have variables that need to be understood and communicated between the two parties. With that, step number two is building the vision and casting it together. Then, create the tactical execution plan, how it will be achieved, and how much it will cost.

The third step is to agree upon the number that the CRO will be held accountable. If everything hit perfect, we could achieve these numbers. Let's just be honest that it's never perfect. What margin of error are you going to build in the plan? It might be 5%, 8%, 10%, or 20%. If you look at any stat you can pull up a few years ago, 62%, or 57% of salespeople, hit quota. It's so low. Now I think it's only 50%. I don't have a study to back it. I just read on LinkedIn that now quota achievers are under 50%. It was like the mid-40s.

So, what happened? There's a whole uprising with salespeople combating OTE, On-target Earnings because it's based on false achievement. Nobody in the company has ever achieved that plan. Salespeople are hard to find right now. Companies are throwing out these ridiculous base salaries to attract good talent. They're also attaching this really high OTE, On-target Earnings, which a salesperson can make any year. I'm seeing 300,000 $400,000 OTE. Nobody's hitting them. The quotas are so overstated and unrealistic.

I don't know if this is correct. It'd be the first time I saw somebody publish a claim that quota achievement last year was under 50% for salespeople who reported their quota. I think that was the RepVue, R-E-P-V-U-E. Someone was quoting a RepView poll. Maybe they get a lot of respondents, like 1000 plus. It's probably like a decent number to look at. I don't know how scientifically accurate it is. But even if 60% of salespeople, that means your 40% of your plan isn't going to be hit? I think that's because CROs have a lot of well... One, they don't know what they're doing. They build a plan that doesn't make sense.

Two, they have a lot of pressure from the investors' board, whatever it might be, to achieve a number. They're doing their best to carve up a number, but they might be limited on headcount, so their hands might be tied. Regardless, not how I build these things.

I recently built a scaling plan for one of the two companies that I'm personally scaling. I took on a Fractional CRO position with two companies if you haven't been listening. I'm scaling them on the side and running House of Revenue®. I just built a sales pro forma plan with a great CFO. She cleared the way for me. She's been a tremendous asset to work with an amazing asset partner in crime on the revenue plan. It's hard because this is a small, young company with a new offering. It's untested in the market yet, for the most part. It's kind of tested, just not the exact way we're pitching it to the market. I built a 20% margin of error for what I will be held accountable for because I need to report conservatively. My goal is to not miss the quota, hit the top-line number, and exceed the top-line number.

I built a very conservative, realistic, and achievable plan. I can't control the 20 variables outside of my control. I just can't, so I put in a 20% very conservative margin of error for the rest of this year. I'd like to reduce that in the future. Once I have better data given me month over month, quarter over quarter, I know what's genuinely attainable. But until I have that data, I requested a 20% margin of error, which was approved.

There's respect between the CRO and CFO position if they have honest conversations. I think it's when the CRO is overstated and the CFO is skeptical about, "Can this really be achieved?" The CFO is questioning. I was like, "Yeah, yeah, yeah, for sure. We're going to get it done." Yikes. I'm putting myself to fail if I don't speak up or really believe the CRO. That CRO-CFO relationship is critical to the success of a scaling company, specifically in a scaling company.

If you're a CRO and haven't sat down with your CFO or a CEO listening to this and haven't suggested those two people sit in the same room, follow the process we discussed today. You're not going to be set up for success, or at least won't be set up for the level of success you could be if you do this the right way.

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Thanks for listening to today's episode. If you're interested in being on our show or want to learn more about how we can help you scale your company, connect with us at houseofrevenue.com or with me Mary Grothe spelled G-R-O-T-H-E on LinkedIn, Twitter, or Instagram.

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