The stock market’s precipitous drop and the current credit crunch will force most companies (including SMBs) to restrain spending and cut expenses. Economists agree, and put the odds of a recession in the next 12 months at 89%. 

With the unknown availability of future financing, companies will need to conserve cash until the banking situation stabilizes and credit becomes more readily available. 

The marketing budget is almost always one of the first items cut. “Trim marketing expenses!” comes the order from the top. It’s easy for the executive suite to slash these “expenses” without a second thought, many of which they deem to be frivolous. 

Should your clients cut their marketing budgets? Probably. If they’re not swimming in cash, it’s a good idea to restrain spending a bit until the credit situation stabilizes. 

The challenge is to determine which parts of the marketing budget to cut. This can be traced back to the more fundamental problem: Most SMB business executives treat marketing as an expense, not an investment.

Companies that slash their marketing budgets to miniscule amounts during economic downturns end up digging themselves a deeper long-term hole. It’s counter-intuitive if you think about it: If you’re planning for slower revenue growth (or declines) because of a slowing economy, why cut the part of the budget that fuels revenue growth? That simply exacerbates the problem.

Since you’re not likely to win this argument right away, teach your clients to focus on trimming the “right” parts of the marketing budget. Don’t accept across the board cuts.

What to cut

Cut expenses not tied to revenue. 

Identify all of the marketing programs that don’t directly reinforce the company strategy. Calculate or estimate the ROI on those campaigns. Cut the lowest performing campaigns and the expenses that you can’t tie to sales.

Make sure to cut the fluff, like frills for existing customers. They’ll understand. With the current fear in the markets, people are accepting that “the party is over” and they’re preparing for frugal times. It’s part of the “battening down the hatches” mentality. 

What not to cut 

Many business owners willingly cut marketing “expenses,” but not their sales force. That’s akin to reducing the weaponry for your soldiers during a battle, but keeping the same number of troops. Marketing (or should I say “good” marketing) produces leads, which is the ammunition for sales reps. Again, this thinking goes back to many SMB executives’ inability to track revenue to marketing spend. If you can enlighten them, they may see it differently.

Your client is better off cutting a low performing rep or two than cutting profitable campaigns that produce leads that turn into customers. Burden the top sales reps with the extra work. They’ll find a way to handle it, probably willingly.

Tags: marketing budget

This entry was posted on Friday, October 10th, 2008 at 3:38 pm and is filed under Marketing Strategies and Tactics, Thoughts. You can follow any responses to this entry through the RSS 2.0 feed. Responses are currently closed, but you can trackback from your own site.