Marketers, contrary to popular belief, don't play with glitter and crayons and we have a strong sense of an impending budget cut. We can read the signs (aka sales results), and know that soon the finance manager and CFO will be sitting down with us to discuss doing the same amount of work with less money.
Before we get into the nitty-gritty of how to manage a budget cut, let's look at some pre-emptive actions you can take to avoid, or minimise, a future budget cut.
How to avoid a marketing budget cut
Marketing is often the first to be approached for a budget cut, and this is attributable to several factors.
1. Marketing is viewed as a cost to the business
In most organisations, marketing is considered to be a cost to the business, rather than a driver of revenue. A good marketer needs to demonstrate the direct link between marketing and revenue. Your reporting to the business needs to show attributable results.
- What leads or enquiries are you driving?
- What percentage of traffic converts?
- How are your nurture tracks actively progressing people through the sales pipe?
To decrease the likelihood of a budget cut, educate senior executives and finance on the direct correlation between marketing efforts and sales. Essentially your data and reporting need to illustrate marketing's impact on leads, traffic, sales and revenue, and therefore the impact if the marketing spend were reduced.
2. Misalignment of expectations and understanding
Somewhat linked to the previous point, many businesses misunderstand the purpose of marketing, and marketers haven't necessarily served their own view well. Marketing isn't just about the somewhat unattributable 'awareness' or managing logo usage. Educating your internal audience about the real purpose of marketing and talking the financials and results will help align expectations and increase understanding.
For example, the CLTV might be $6000, but the value of the first sale is $150. It the CAC is $120 it appears that you are only making $30 revenue (and a loss once COGS has been taken into account). No finance manager is going to be excited by these figures.
However, your CLTV is 50x your CAC. That is a little more exciting.
You can then talk about the marketing levers you can use to increase that CLTV, or realise it sooner or increase cart or purchase size to increase profitability.
Painting a clear picture of what your team can do to make marketing spend work harder to increase the bottom line helps to manage expectations.
3. Know where every dollar goes. Make the whole team accountable.
Anyone who has worked with huge marketing budgets and huge marketing teams knows it takes disciplined fiscal management to ensure you understand what is being spent and how it is impacting the results.
By implementing strong fiscal control and visibility across your expenditure, you can develop within the team a mindset of innovation and iteration to optimise planning and expenditure. This ensures your resources aren't wasted - they are either building a long-term market position as a buffer, or sales and revenue results.
This level of connection to budget spend will also serve you in meetings with finance because you can explain what is being spent where and the results they are driving.
If you are doing all of this and a budget cut is still looming, here are some tips to approach it the right way.
Managing a marketing budget cut
1. Understand why this has landed on your doorstep
Budget cuts are usually a response to business and market conditions. Understanding why this situation is happening will help you understand how to approach the conversation and actions.
- Lower sales than budgeted: when sales targets are missed, and expenditure hasn't decreased, as well as an increased likelihood of missing the yearly forecast, there is an increased risk of decreasing profitability as well. Less in, but same out = ouch.
- Pre-emptive strike against prevailing headwinds: when the business looks out and sees declining results, confidence and sentiment, they often make a decision to cut before the hit, rather than wait for the hit and then cut. Sales might not have yet started to decline, but the smell of it is on the wind, making everyone nervous.
- Performance cuts: when the company feels there is limited value in what you are producing, they may limit their exposure to this lack of perceived value and cut to increase profitability.
2. Understand what type of cut this is
Is the business making uniform budget cuts across the whole organisation or is it cutting deeper in some areas than others? By understanding how uniform or irregular budget reductions will impact all areas of the business you can identify how to navigate this particular situation.
Uniform cuts usually mean everyone will be hurting and you can perhaps negotiate an agreed lowering of service or output across the business. If the marketing team is being asked to find another 3% savings over and above the cuts of other departments, you will need to signpost the impact of this to the different areas of the business, so they understand they too will be impacted.
Is this budget cut a result of a re-forecast or is it reflected in the new financial year planning? If it stems from a re-forecast, how will you deliver the current strategy on fewer resources? Revisit why the re-forecast is occurring - missed sales targets, demand for increased profitability, damage limitation - to position both your request to hold budget and if that fails, how to renegotiate your deliverables based on fewer resources.
If the cut is delivered across the new financial year, what are the reasons for a full year cut? Have the revenue targets been revised down as well? Ideally, negotiate with the executive that if you exceed targets, they provide you with the budget to chase down stretch targets. Setting tranches and milestones can help demonstrate how committed you are to targets, and can help bring more money to the table.
3. When staying the same feels like a cut
Year on year the cost of marketing increases - it costs more to buy attention, suppliers factor in YoY price increases, salaries increase, new channels need management and content, new products are bought into the range and audiences fragment even further.
There are times when maintaining the same budget as last year feels like a cut - you need to do more with the same and the team are stretched so thin you can see light through them. In this scenario, managing expectations is essential as is having data to support your position that 'the same will buy you less'.
4. Is the cut across expenditure, FTE or both?
Managing a budget cut for your expenditure, but it is another thing entirely when it starts to impact staffing. If you are asked to cut staff, understand if it is permanent staff, contract staff or temporary staff or (shudder) all of the above.
How do you deliver your core mandate with less staff? Map all staff functions and the amount of time they spend on these functions. Sit down with your team to identify where efficiencies can be made. For example, if you have a staffing cut but not a contractor cut, you can look at a temp or contractor solution. What platforms can be implemented and integrated to automate work and workflow?
If you have a cut to your ATL, BTL and creative development budget lines, there are a couple of key management actions you can take:
- Reflect these cuts according to the size of the revenue they are supporting. If an area of your business is driving 30% of your sales, it makes more sense to preserve spend in this area rather than cut it to keep expenditure for a business area with 5% of sales.
- Maintain as much as you can. After several years of no increases and budget cuts, it can be tempting to throw your toys out of the cot. However, by maintaining as much of your current strategy and operational plan as you can, the business will come out the other side in a healthier position.
- Reuse and anniversarise your campaigns and creative. We all love the new and the shiny, but the reality is that the vast majority of your customers aren't going to walk away if you use the same ad for Mother's Day you did last year or the same in-store POS for a sale. Reducing your creative development costs in the short term means you can decrease the impact of the budget cut in your placement channels, where the rubber hits the road.
- Work your owned channels harder and smarter. Obvious, and true.
- Find a way to introduce an extra campaign into market. An additional campaign may have you running for the hills, but driving sales extra hard on a smaller budget can be a real win for the team when they are beaten down by a budget cut - it can be a real rallying cry and a stake in the ground to conquer adversity. Plus, of course, an extra campaign drives increased sales and hopefully breaks the cycle of budget cuts.
Ingenuity and negotiation
Managing a budget cut isn't for the faint-hearted. Managing a budget cut takes ingenuity, negotiation and communication.
- Know your figures, data and results to demonstrate the team's worth and outcomes.
- Be prepared with several budget models and the impacts of these models.
- Aim to negotiate not just the budget cut but a corresponding change in mandate or deliverables.
- Communicate with your team. Signpost what is happening, get their help modelling scenarios and proposing solutions, and let them know the outcome of budget discussions.
- A budget cut isn't the end of the world, even if it feels like it. You got this.