Why you shouldn’t cut the marketing budget in a recession
It’s been a tough few years for businesses what with COVID-19, Brexit, the war in Ukraine, looming stratospheric energy prices, and now the UK government has thrown a fiscal hand grenade into the mix for good measure with its ‘mini budget’ on 23rd September. Smashing. With a downturn on the horizon, the temptation is there, but there are good reasons why you shouldn't cut the marketing budget in a recession.
The worst of times?
Since the beginning of the pandemic it’s been difficult for businesses to plan properly for growth because there has been very little stability and quite a lot of uncertainty as to what’s coming up in the next few months or even years. We are now looking down the barrel of a recession which just compounds problems with forecasting for many businesses. And, one of the first company budgets to be cut to reduce costs is…? Marketing.
Why marketing is the first to go
Most businesses reduce spending during a recession and the marketing budget is often the first on the chopping block. During downturns, companies go into survival mode and marketing is often seen as a discretionary, or non-essential, expense, especially compared to the costs associated with the core running of the business such as payroll and office costs. Sometimes, marketing budgets can be high, or represent a high proportion of company outlay, so cutting the budget can have an immediate impact. Also, if marketing strategies are not particularly well run and monitored, it can be hard to fully know the impact the strategy has had on turnover and therefore makes continuing with the same budget difficult to justify.
Marketing is all about the customer so cutting the marketing budget is often not the right thing to do when times are hard – if you’re trying to save money by reducing costs on ‘non-essentials’, why did you even have a marketing budget in the first place? Marketing is often seen as an expense when really, it should be an investment. If it is an expense, you’re doing it wrong, so it’s time for a rethink.
Assess marketing spend
An analysis of the impact of a marketing budget is vital to know whether to cut the budget or spend the money elsewhere. Companies with a well-run marketing strategy that is closely monitored should look back at the returns it made in the previous year to get an overview of where the money went and whether it had a good enough impact. It doesn’t matter if this is a global corporation with TV ads in every country or a micro-business spending time on Instagram posts – was it worth it?
There are so many streams of marketing activity so directing time and/or money on the right ones is key. Goals should be set and if marketing efforts don’t, or haven’t, hit goals, then cutting a budget won’t fix the problem.
It’s possible that the marketing channels being used are underperforming so reallocating time or money to other channels may yield better results. Alternative channels you haven’t made a mark on could increase ROI which optimises and justifies the marketing budget. If previously you’ve spent money on Google Ads, would allocating time or money to LinkedIn ads or Facebook ads create a better return?
For SMEs starting out, the temptation is to create profiles on all available social media platforms which means they are spread too thinly and making less impact across the board. Profiles on every social media channel are impossible to maintain effectively so better to focus on the platforms that actually benefit your business and are used by people who want to buy from you. Take a global view and it should be clear which ones are working for you.
For companies with an existing customer base, dedicating resources to newsletters or mail shots is a way of increasing ROI. It’s easier, and cheaper, to make money out of existing customers than generate new business. If you run a company providing services to clients, your clients are in a downturn or recession too. Ask them how you can help – they’ll still need your services and still need to buy from you.
Reasons not to cut your budget
There are many reasons why you shouldn’t cut the marketing budget in a recession. Marketing makes money which is why you do it. During an economic downturn there is a need to increase revenue. Cutting the budget decreases the chance of this happening and could, depending on how you’ve been marketing, reduce repeat business too.
Reducing the budget reduces the number of income streams and the quality and quantity of communication between business and customer. This can lead to customers wondering about the stability of a business, how much it cares about customer retention, and could lead them to going elsewhere to a company with more visibility and activity, and better communication.
Many companies in recent downturns, such as the 2008 financial crisis and the pandemic, increased marketing budgets. These brands became much more visible due to many companies reducing their advertising exposure. The field became clearer and less noisy so the argument for increasing the budget is strong due to there being less competition. Cutting your marketing budget could mean the competition will overtake you.
In the long term, cutting marketing budgets won’t save money. Granted, there is an immediate hard cost saving, but reducing or eliminating income streams through marketing will result in a reduction of the bottom line over time. Hard costs savings are easier to see as you can add them up and get a figure, but they are only a small part of cost saving strategies.
Reducing budgets also reduces efficacy. Less money invested reduces performance as marketing activities have to be scaled down which, in turn, won’t provide a decent ROI. You may be spending less but you’ll be gaining less, perhaps even nothing. Spending money on nothing really is a cost.
Maintain and readjust
Marketing in tough times is never easy and cutting ‘costs’ is a natural reaction. But eliminating a large part of how your company makes money, i.e. the marketing budget, will likely result in a hit on turnover.
Recessions are not the time to get rid of marketing activities but reassess how they are done. Your customers and clients are also going through the same thing so it’s time to change tack, try new techniques, formulate different strategies, re-evaluate your offer, optimise your efforts, and re-assess how you present your services and value proposition. Don’t stop spending money – change how you spend it. In the end, it all comes down to the people who want to give you money – customers still need you, and companies who respond to what customers need in a recession are ones who make it through.
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