Many companies are now planning for something other than a very quick economic bounce-back from the COVID-19 crisis. As I write this in early August 2020, the pandemic is still wreaking havoc on many parts of the world, and in particular the US. As the US, India, Brazil and other countries struggle to deal with the first wave of infections, and countries that successfully reduced the spread continue to stamp out inevitable flare-ups, one can only wonder how we’ll deal with a potential second wave coming this fall. It’s hard to be optimistic about a strong economic bounce-back in the later half of 2020 or even 2021. Either way, its going to be a rocky road ahead with the potential that the virus springs back even when it seems to have been controlled, as we are now seeing in parts of Europe and Asia. You need to prepare for a very uncertain future, which will likely include very strict cost controls in upcoming budgets.
Be careful not to short-change marketing.
In these tough times, many companies have already cut back significantly and will continue to have to cut back more across the board in 2021 to respond to the business slow-down resulting from COVID-19.
This is inevitable. Company costs need to be cut to better align with new revenue targets. There is no way around that. But marketing tends to suffer from a higher percentage of cuts because they have the most discretionary dollars compared to other departments. The thinking being, let’s save jobs at the expense of some marketing programs. And then when things start to pick up again, we can just add that marketing budget back in and get things cranking again. This is flawed logic as it argues to “hope” that the car maintains its speed while we cut off fuel. This almost never works.
Hope is never a good strategy.
There are really only two places to cut costs significantly for most companies; people and marketing programs. Yes you can trim travel (now especially not necessary) and cut department discretionary budgets (which are typically small), and possibly delay major purchases. You may save some on unneeded office space. You can even dig deep and cut office snacks (gasp!). Quick aside: I am always amused at how upset people get about the reduction of office snacks, as if they are some kind of constitutional right. I have seen people literally flip out over snacks being reduced in quality or quantity. My former CEO used to say, “Its like someone shot the Pope!” So when we go back to the office, cut the snacks at your own risk! Hint: it’s not worth the few dollars you might save.
Tough times like the kind we are in right now demand tough choices. But cutting people is very difficult to do and no one wants to do that even in the toughest of times. Most CEO’s want to avoid laying-off people at all costs and cut other areas that are less painful to endure. Marketing budget is often one of these areas targeted to be cut.
And marketing budget is often exposed because it can’t directly attribute its activity to revenue generation. So when faced with cuts, its often easiest to cut marketing budget because there appears to be no direct ramifications. No laid-off employees. No severance to pay. No potential lawsuits. No morale problems with employees. Just a smaller marketing budget and fewer programs. No problem!
Wrong. Cutting marketing budget has serious ramifications that are often not fully considered.
Revenue is what pays all the bills across the company and marketing is critical to driving revenue. If you shortchange marketing, you are cutting off the fuel to the engine that will drive you though this economic storm. You could strangle your revenue growth and put your company into a downward spiral of declining revenue, more cost cutting, more declining revenue, and so on. It’s a death spiral.
All marketing needs to do is show how its budget drives revenue.
The problem is that many companies can’t directly tie revenue to the bulk of their marketing spend. That’s marketing’s fault. They need to be able to directly correlate their activities and spend to revenue production in terms of new business, upsells and renewals in order to justify that spend. In the ideal world, marketing can predict how much revenue the company will generate based on a certain level of marketing budget. It is essentially a predictive revenue model based on historical data of opportunity generation, conversion and closure.
But we are not in an ideal world. We are in a global pandemic! And lacking a model like this, marketing budget often finds itself on the chopping block. But keep this in mind: just because you can’t directly attribute marketing spend to revenue does not mean it isn’t happening.
Just because you can’t see it does not mean its not there.
Of course, Marketing are not the only contributors to revenue, but many others are more obvious and easier to justify and therefore harder to cut during tough times. Sales directly produces revenue so they will always be supported and protected from cuts. Product teams make product that customers buy. Can’t cut them. Customer Success and Services makes sure customers are successful and want to renew. Not a good place to cut in tough times. Finance works for the CFO and they control the purse strings, which means their cuts are typically small. Marketing is usually the biggest and most obvious place to cut.
The problem is, when marketing is cut and is now working with a smaller budget, marketing then has to reprioritize how it will spend this smaller budget. And they tend to cut from channels that appear not to be producing and stick with channels that are producing. This would appear to be a net positive and marketing should increase its efficiency. But there are two problems here. First, many channels can be complimentary to the attribution of other channels even when it’s not showing. This is classic behavior for all kinds of advertising, radio, roadside signage, events and tradeshows, display, retargeting as well as social channels like LinkedIn and Facebook. You may get very little direct attribution to those channels, but they help to lift all other channels. Without these other supporting channels, your main channels won’t perform as well as they had with that complimentary support.
Secondly, many things in marketing that worked earlier this year are no longer working in this new normal COVID-19 world we now live in. This is not your run of the mill economic slowdown. All of our lives and daily routines have changed dramatically. GTM strategies need to adapt to this new normal. Messaging and positioning likely needs to change to reflect the target prospects’ new priorities. Buying patterns, purchase cycles and decision-making processes have likely changed as target customers adapt themselves to this new world. You’ve got to figure out what has changed and how to adapt. And those things are tough to figure out when your resources are cut and leave no room for experimental or innovative new strategies, or new content instead the tried and true of the past.
Also, given that budgets of most companies are also being cut due to the economic uncertainty, there is now less money going around. So opportunity generation and conversions are likely to be lower from the same level of spend. In other words, you’ll get less bang for your buck this year compared to last year. So a marketing budget cut is really a double whammy on your revenue generation. And since there is less money going around and fewer deals, you have to compete even harder to find and win each deal. Cutting marketing now just hands more business to your competitors.
This will not be a popular position to advocate. Cutting people instead of programs on the surface looks somewhat cold-hearted and insensitive. But in the long run, it may be the best approach to save the most jobs by getting the top line moving again. Remember revenue pays for everything. Cutting costs that severely impact revenue generation will only result in more cuts later on.
This holds true for any tough times that calls for expense cuts in the face of uncertain revenue generation. Although the global pandemic is a once in a century public health crisis, the economic slowdown that it has created is not unique and is something that all companies have to deal with on a regular basis.
Here is the key to preserving your marketing budget, and getting more budget going forward; don’t talk about marketing budget, talk about pipeline generation. Even the most cost-conscious executive knows you can’t generate revenue without pipeline. Marketing needs to sign up for a pipeline number, and the resources needed to achieve that target. Less resources in terms of people and budget means a lower pipeline. This shows the executive team that there are consequences to cutting marketing. Finance understands numbers. Show them numbers that are believable and backed up by historical data and they will be your best friend, as that helps them run the business.
Here is a quick plan to help you justify your marketing spend in the face of budget cuts:
- Build a model that directly shows how much marketing resource you need to generate a certain level of pipeline based on historical data. You’ll need to make some adjustments and assumptions on how future conversions will likely be lower than past conversions due to longer sales cycles and more budget-conscious buyers during a recessionary period.
- Based on historical data show how much of this pipeline can be closed for new revenue.
- Show how customer marketing, announcements, events (online or not), product promotions and community work contribute to renewals and upsells. This is usually a much smaller expense than new business generation, although not always. At Taleo, our single biggest expense, and most successful marketing program was our annual user conference.
- Show how marketing budget = pipeline = revenue for different levels of spend so you can run different scenarios.
- And if you need to make some cuts in marketing, then so be it. But communicate clearly how much the top line will suffer as a result.
Overall you are showing that marketing is a direct revenue generator instead of just an expense. Cutting expense is easy. Especially when there are no perceived consequences. But no one wants to cut things that generate revenue, because it’s the engine that drives company growth.