Part 3 of the series: A B2B CEO’s Guide to Navigating the COVID-19 Revenue Reality
In an economy roiled by the pandemic, it can be tempting for CEOs to wield a cost-cutting knife—with unrelenting and deep-cutting fervor. Indeed, it’s understandable: For generations, the natural inclination of many B2B CEOs has been to cut marketing when things were tough. In our last blog, we hopefully impressed upon you the importance of viewing both sales and marketing functions as a cohesive team, working as a symbiotic unit to pull sales out of crisis mode.
The last time we experienced any sort of prolonged and sweeping economic malaise—the recession of 2008-2009—marketing spending was unilaterally cut by 10 percent in the first quarter of 2009, the first full quarter after the banking crisis set in.
In fact, data collected from recessions in 1949, 1954, 1958, and 1961 indicated that companies that cut ad spending during those periods not only saw fewer sales and lower profits – they also experienced less growth than their competitors in the years after the recessions.
In my experience, you could accuse some CEOs of having never met a marketing dollar they did not want to cut. And, certainly, sometimes that actually is the right priority. For example, if market conditions are bad (such as in the current economic environment) and the product is not fully functional or is suboptimal, you should prioritize on product development over marketing. Prepare your product and shift back to marketing when your dollars will make a difference.
On the other hand, if you are bleeding cash, but are operating with a functional product suite, and you have strong competitors and a proven market, it is important to take a step back and identify cuts that won’t impact long-term growth. Before committing to arbitrary or emotional cost reductions, take a strategic look at every functional group. Each function should be able to contribute to cuts, unless you truly believe you have some perfectly run functions (which would be hard to believe – very little is perfect). Some functions may have more room to cut than others.
Despite their best intentions, your leadership team will undoubtedly struggle to volunteer their respective functions as the ones that can absorb cuts. So, it will fall to you to make the decision and allocate cuts. Here are some ways you can consider strategic sales and marketing cuts that will help to conserve cash, but not slice away the essence of your go-to-market approach:
- Start with the portion of your transactional marketing spend that is not immediately producing revenue. In the current economy, many tactical lead-oriented expenditures may not be producing the same short-term ROI value as they had previously. Tactics like paid search and paid social media placements come to mind. These types of expenses, if deteriorating in ROI, can be turned off (or redirected) and reinstated fairly easily when the economy picks back up — and will not damage you in the long haul. Naturally, the starting point is a financial assessment of the payback period and profitability of this spend pre- and post-pandemic.
- Ask your team to identify those items that will contribute to a healthy pipeline as you emerge from the economic crisis. For example, it might be important to keep high-value prospects warm. To do so, perhaps you can commit to a baseline level of communication to these prospects, sending them thoughtful content via marketing emails or other channels. Look for the most efficient channels to stay in touch, while eliminating other items that simply will not produce short-term value. Those items that are obvious candidates to suspend include 60-day travel budgets, sales recognition programs, trade show budgets, and entertainment budgets. Reallocate those funds in support of programs that keep you top-of-mind for your clients via digital and other remote channels.
- If layoffs are inevitable, consider how you prioritize with a different lens. I just learned of a company that laid off 50 percent of its marketing personnel while retaining 100 percent of its sales organization because of a belief that sales is “revenue-producing.” I can almost guarantee that not every salesperson in that organization was equally valuable. I can also guarantee that at least some of the marketing staff facing the ax were essential to future growth. Studies suggest that a healthy percentage of those people laid off, probably the stronger ones, will move on to other jobs. This only compounds the pain: It will be challenging to replace the individuals this company needs for future growth, particularly those with a deep understanding of the company’s complex offering. Rather than taking broad-based cuts, listen to your head of marketing, who will explain the value each person contributes. You might find that a more balanced allocation of cuts is in order.
- There are longer-term solutions that may be viable, particularly for those companies that can move restructuring costs below the line. One way to do so is by outsourcing some of your marketing function. In a recent role, I executed an outsourcing program utilizing marketers in India. In doing so, I broke all the rules of the outsource company, in terms of how they like to do business. They wanted a single point of contact, and we preferred one-to-one relationships with India-, U.S.-, and UK-based counterparts. They were offering low rates, while we were willing to pay a premium for stronger talent. Ultimately, we executed the model we felt would work. It resulted in savings of about 40 percent over the salaries of 14 US-based professionals they replaced, while building a high-performing outsource team that became essential to our business. This would not have happened without the ability to move restructuring costs below the line. The less attractive alternative would have been to simply eliminate positions that the business actually needed. Bottom line: Perhaps there is a way to build a creative solution, if you partner with your head of marketing and engage in meaningful dialogue, rather than assigning arbitrary percentage cuts without discussion.
In our next blog, we’ll look at a few options to dynamically configure your sales and marketing organizations, so they are best positioned to face the current challenges, while keeping the same level of collaboration and forward-thinking progress after the crisis has passed.