Here’s the gist: Start by finding campaigns and channels that aren’t performing, pause underperforming initiatives, then optimize all remaining projects.
Cutting costs has become a necessity for corporate survival, especially during a bear market. Since late 2021, executives and finance teams have begun to put the brakes on spending to protect cash flow. The first channel that feels the brunt of the financial axe is typically marketing.
But, if you start with fast or blanket cuts, you can severely damage your company’s sales and future market share. What do we mean by lose future market share? During the 1990–91 recession, McDonald’s decided to drop its advertising budget, but Pizza Hut and Taco Bell didn’t. Both of those chains both saw double-digit sales growth, while McDonald’s sales declined. Companies like Blue Apron Holdings took a similar step by reducing its marketing budget by 43%, but posted a loss of $31.6 million.
More selective cuts, on the other hand, can mitigate losses, shore up cash flow and even improve performance over the long term. But to do so, you’ll need to have a concrete plan and be surgical with where you cut budget.
How to Decrease Your Marketing Budget Without Sacrificing Sales
1) Find your duds and keep funding your top performers
In marketing, slashing spend at the top of your funnel can have significant consequences on your total sales.
That’s why it’s important you find your top performing marketing channels and ensure there’s always adequate budget to keep them going.
Here are the KPIs you’re going to want to look at:
- Return On Ad Spend (ROAS): If you have a 3x or better, those are keepers
- Cost Per Acquisition: If the cost is high, that’s a red flag. You should take a look, but remember ROAS is more important.
- Customer Acquisition Cost: How much does it cost for you to create a customer? This includes budget, content, time investment by the sales team, tech stack costs, etc.
- Assisted Conversions: One thing most companies don’t look at but should. If you have a marketing channel that’s helping turn website visitors into sales leads, you don’t want to cut that channel. If you do, you could expect a lower conversion rate, meaning less sales. (Often these channels are SEO, Email Marketing, and Content Development –think Blogs, FAQs, etc).
BEWARE LAST TOUCH ATTRIBUTION: If your organization uses a last touch attribution model, be very aware you’re not seeing the real influence your marketing channels have on revenue.
2) Start with your tech stack
If you don’t have a handle on the details above, start with your technology suite — you’ll find ways to cut costs there that won’t impact your overall performance. If you don’t have centralized visual costs of your marketing technology stack, now’s the time to put it in place.
Companies that put in a centralized oversight can reduce marketing spend fast. Here’s how:
- Eliminate redundant products and contracts
- Remove products that have redundant functionality
- Stop paying for abandoned products
- Stop paying for products you don’t really use–most companies only use 15% of a product’s functionality
Most companies rarely look to their existing platforms to solve new requirements they have as they grow. As a result, they buy new products, and your technology stack becomes bloated with overlapping functionality.
3) Cut your underperforming channels (and campaigns)
If you need to further reduce your marketing spend, start with the projects that aren’t producing (or contributing) to sales. Look at the KPIs mentioned above and focus on performance.
Key campaigns to save from budget cuts:
- Branded PPC campaigns: These *should* be your highest performing paid marketing campaigns
- Lookalike audience targeting: These campaigns, if taken from your SQLs, will help narrow your spend to just the audience most likely to convert
- SEO initiatives: SEO is the long-term growth channel. It’s the one that will make your acquisition costs decrease over time. Cutting this channel will cause damage your company’s sales and future market share.
4) Optimize your existing marketing campaigns
The first thing you want to do is avoid cuts that spur churn or raise acquisition costs. For example, it could take up to nine months to recover from pausing SEO, while cuts to paid search could raise the cost of customer acquisition. The key is to understand where the fat can be trimmed without undermining performance.
The best way to do that is to estimate the point at which your marketing spend begins seeing diminishing returns. In most high-performing media channels, there is a threshold beyond which marketers end up seeing diminishing returns–meaning higher costs and less performance.
Here’s an example: You get 3500 clicks and 150 conversions for a $2000 investment in PPC. So you increased your budget to double down on a strong channel. But at a certain amount of investment, you’re seeing that the return on investment starts decreasing (This is why you want to track ROAS). That’s your point of diminishing returns.
So how do you apply that same strategy to inbound marketing channels? This is where assisted conversions are helpful. By looking at how particular inbound channels like SEO, content development, email marketing, and social media marketing are contributing to reputation and sales, you’ll start to see the same trend – at some point, over-investing in those channels will also have diminishing returns.
5) Plan now for a return to growth
Bear markets don’t last forever. And neither does c-suite mandates to cut costs. There’s going to be a point in which growth will be demanded again. It’s a good idea to start that process now, so you’re ready when the time comes to ramp up production without wasting budget.
You’ll want to lean into the new data-driven focus created when cutting costs. While looking to cut costs, it’s important to create cross-functional teams, a test-and-learn mentality, accurate reporting, and a bias-free, data-driven mindset. If you can do that now, your performance when budget is allocated back to marketing will be significantly better than before.
A quick note about employees
We can’t forget about the people part of this equation. Nobody is a fan of letting people go. The very best way to protect your people from layoffs is to make them indispensable. That’s done through skill enhancement. Leveraging free or low-cost training programs will help broaden skill sets make each employee inherently more valuable to the organization. This will do two things:
- It’ll help your reduced team outperform
- It’ll strengthen your organization in preparation for the future
All in all, no one likes making the hard decisions of what (and who) to cut. But by taking an analytical approach to where you’re spending your marketing budget, you can safely reduce your overall spend without sacrificing your performance.