In times of financial uncertainty, small businesses often face a critical decision: invest in marketing to fuel growth or cut costs to conserve resources. This decision can significantly impact a business’s trajectory for years to come.
The important thing to recognise is that if you are in a hole then it is necessary to make changes – Do not just stick to your old tried and tested ways as the financial situation proves that those are no longer working – Now is the time for a fresh start.
We have seen many clients in this situation as it is a common one for small businesses to go through in their lifespan – I have never yet seen a case of constant smooth sailing.
When things are tight financially spending money is nerve wracking as getting a profitable ROI is critical, but bunkering down carries the risk of grinding to a halt and being unable to cover your fixed running costs. How do you make the decision on which way to go?
In our business we are fortunate that the two Directors in the business that focus on the strategy have different personalities – I (Joel) am more of a risk taker and default to the spend our way out of a hole mindset whereas my business partner Kinjal is more conservative and tends to opt for tightening the belt when things are tough. This dynamic has led us into many situations where we need to both analyse the situation in order to support our thinking and from this we have learned some of the important rules behind what needs to go into these decisions.
Understanding the Situation
Financial Health Assessment: Begin with a comprehensive review of your business’s financial statements. Analyse cash flow, debts, and assets to understand your financial resilience and capacity for investment. Being in debt makes investing harder but it is still not a reason to not invest, if you are confident of a positive outcome.
Market Conditions: Consider the broader economic environment and how it affects consumer behavior. During economic downturns, consumers often seek greater value and may change their shopping habits. Understanding these shifts is crucial to tailor your marketing strategy effectively.
As well as the broader market conditions look at your own business and spend time identifying your weaknesses. Before spending money, work on making improvements to your product/service positioning/communication so that for the consumers in your market you are obviously a good option for them.
To do this understand your pricing and your service in relation to the competitors and clearly justify your offering – more expensive is only a problem if you fail to communicate the additional benefits you offer.
Analysing Marketing Investments
Marketing ROI Assessment: The cornerstone of any marketing decision is the return on investment (ROI). If you have existing campaigns running on Google Ads, Meta Ads, Bing Ads, Pinterest etc then you will be able to see the performance down to an ad/keyword level.
We have seen many businesses going through tough times conclude that as a channel is unprofitable it needs to be stopped in it’s entirety. This is a mistake – do 2 things:
- Maintain spend on anything that is running profitably.
- Review the unprofitable campaigns to identify areas for improvement – perhaps with a new landing page or clear ad copy they could work. Test one or two of the edited campaigns at a time to limit risk.
This article relates to larger businesses but it is a helpful read to better understand the decision making process.
Read the part in the article about the Case Study for United Airlines: During the early part of the COVID-19 pandemic, United Airlines doubled down on branding and launched its biggest ad campaign in a decade, leading to growth in passengers and miles flown. This highlights the potential benefits of sustained or increased marketing investment during challenging times.
Email marketing is a low cost channel where you can reach all of the customers that have previously purchased from you and are going to be the most likely to do so again.
Are you making the most of this channel already? Many businesses fail to do so as it is low cost so their focus lies elsewhere on the channels where their budget is going. Make sure to prioritise email at all times, especially now.
Spend some time generating ideas about what automated flows you could put into place. Most email marketing platforms now have the functionality for you to create rules based campaigns based on peoples past purchases or behaviour.
Set up flows that make it easy for your customers to purchase from you again – reference their past experiences with you and introduce them to other products/services that are an extension of what they have bought form you already.
Identifying Cost Reduction Areas: Analyse your expenses to identify areas where costs can be reduced without severely impacting your operations. This might include renegotiating supplier contracts or optimising operational processes. Here are some more ideas.
Marketing Cost Reduction: Review your marketing strategies to identify low-performing initiatives. Make sure to use a 3 month date range so that your data is trust worthy. If certain campaigns or channels are not yielding sufficient ROI, quickly reallocate resources. For instance, shifting short term focus to online marketing channels like social media and paid search ads and away from content production can be more cost-effective and provide real-time measurable results in the short run. Of course content marketing is important long-term, but when things are tight you need to focus on revenue generation in the short term.
Making the Decision
Balanced Approach: Weigh the potential benefits of marketing investments against the necessity and impact of cost reductions. Use data-driven analysis and consider both short-term needs and long-term growth potential. Focus on both approaches in a well balanced way – It can be very refreshing to spring clean the business and come out with a more efficient machine.
Scenario Analysis: Engage in scenario planning to understand the potential impact of different strategies. This could involve creating financial projections for various approaches to marketing investment and cost management. Add in your expenses and liabilities so that you know what the worst case scenario will be if all goes wrong.
Implementing the Decision
Action Plan Development: Once a decision is made, develop a clear action plan with specific goals, timelines, and responsibilities.
Adaptability and Monitoring: Regularly review the performance of your strategies and be ready to make adjustments based on market feedback and changing conditions. It will never all go to plan straight away but as long as you have a few healthy shoots then you can build a way forward around those.
Strategic decision-making in times of financial challenges requires a careful balance between maintaining growth through marketing and ensuring financial stability through cost management. By adopting a data-driven approach and considering both immediate needs and future growth, small businesses can navigate these challenges effectively.
The key thing is to not freeze, instead get working on the analysis and start making decisions. Do not rush your marketing communications – you need to execute as effectively as possible in order to get through a tough period.