How Deeply to Slash a Manufacturing Marketing Budget in a Recession?

Tl;dr - When recession hits, there's pressure to cut costs. Although excesses shouldn't accumulate to begin with, data can guide cuts to marketing and sales when they're required. Here's how to approach tough decisions on recession cost cuts in industrial sales and manufacturing marketing.

Save Your Way to Revenue Growth

The idea of responding to collapsing revenue by slashing the revenue growth functions of manufacturing marketing and industrial sales is prima facie absurd. 

Nobody can argue otherwise.

And yet companies follow this path routinely as economic activity slows as during a recession.

It's true that in a perverse way this may make sense. Most salespeople can't sell effectively in a recession. They'll get the standard budget freeze arguments (the exact inverse of the ones we discuss here - a bit of hypocrisy, right?) and just give up. "That sounds right" they think. That's what their own management is saying. That's just the way of the world.

By definition sales teams are average. And even the top 20% in companies without clear sales processes, updated methodology, continuous sales training, good sales enablement, and effective sales force automation and acceleration technology will just be the proverbial big fish in the small pond. 

So if your team can't sell, then hesitance to invest in providing leads and subsidizing lack of performance is sensible. And that's why some companies cut sales and marketing just when they need it most.

The solution isn't to give up, of course, but rather to strengthen your sales team with improved recruiting, and all of the building blocks listed above. That takes some time - that's why I've been encouraging companies to prepare since June!

But back to the purpose of this article - it's not to insult your intelligence by explaining why it's silly to cut sales when you need sales growth more than ever (and of course I understand the imperative of cash preservation) but rather to take a reasoned approach to the question of how deeply and where to cut.

The proper goal is to satisfy investor/banker pressure to reduce costs but to do so in a way that doesn't negatively impact opportunity creation and closing.

That means that we need to identify the activities and talent that drive opportunities and revenue, and tactically cut around them while carefully protecting them.

Measurement, Reporting & Accountability + Some Informed Guesses

We need to start with data. For example:

• length of sell cycle, average deal size and margin, lifetime value, close rates, and revenue by lead source
• industry, company size and other factors driving the fastest deceleration vs. stable activity (to identify where to focus)
• marketing activities that drive leads vs. awareness and branding, and the sell cycle and relative ROI on the investment in each lead type
• sales reps consistently hitting quota and those who most frequently discount to win deals

Of course this means that you need accurate data that you can only access through consistent, proper use of marketing automation and CRM - ideally with robust reporting options as well.

These critical metrics which will inform decisions are the byproduct of the consistent use of marketing automation and CRM tools - itself a product of accountability.

Of course, the numbers alone may not provide the entire story, so we'll need to add in some market savvy. For instance:

• which competitors have been weakened by the recession and should be targeted
• how has the recession changed your ideal customer profile (ICP) calculus (e.g. privately held and agile vs. multinational and bureaucratic)
• what target sectors are likely to grow or remain steady while others fall

The data and the market savvy will combine to give you a sense of what's (markets, tactics, people) working and what's not, and what's going to work vs. what's not.

Then it's time to make some thoughtful cuts that will help you 

Make Cuts to the Revenue Growth Function

Please don't forget two points. First, it's wrenching for people and their families. Obviously for those who are let go, but also for everyone else who thereafter works with the Sword of Damocles hanging over their heads. Second, it's a reflection of poor management - at least in the revenue growth area (I understand that it may be more difficult to 'right size' a manufacturing team.) People and programs that are underproducing shouldn't be on the ledger regardless of market conditions. That they are, reflects poorly on management. Either inadequate performance data is collected, or it's not used, or corrective actions haven't been taken.

You're certainly not alone in that. And, therefore, it may be high time to make some cuts. People expect it, and your bankers and investors will be relieved. It may even be soothing and reassuring for you - although always an unpleasant experience.

Here's what's going to go.

1. Any manufacturing marketing activity that doesn't tie to lead generation with a documented track record tieing it directly to attributable revenue at a rate, and in a time frame that can be confidently called revenue generating.
2. Any marketing staff who is unwilling or unable to quickly shift from a non-performing function to one driving results.
3. Any industrial sales staff who haven't hit their KPIs for >6 months. (If it's less than that, then immediately put them on a PIP - performance improvement plan - with clear expectations. If you don't have the data, or don't have KPIs, then that is your highest priority.)

What does that really mean?

Marketing

On the industrial marketing side, if you have the data, it will be simple. You will know, accurately, what lead generation activities generate what leads - and further the sell cycle, close rate, average sale size and profitability of deals that emerge from that lead source.

Think of the power of this. A typical middle market manufacturer might spend $750K on trade shows, $100K on trade journal advertising, $75K on paid ads programs, $25K on content and an unallocated $80K personnel cost. And in most cases, they'll have only anecdotal returns tied to a few trade show leads and precious little insight into the other $280K. However, in a few well-managed cases they'll see data like this. (The numbers will differ, and different sources will perform differently, but the data to support decisions will be of this sort.)

* Customer Acquisition Cost (for this example, really transaction acquisition cost)

There are a couple of things to keep in mind.

First, content leads (inbound marketing) are different. Your salespeople probably don't sell them properly, and that will impact the data. Across the board, your sales team probably doesn't make >10 touches to every lead. So your data might be skewed. Over time, sales process, accountability, and technology will help. For now, it's the reality.

Second, the people that run threatened programs will challenge your decisions. Your paid ads program will point to the huge number of leads as justification for focusing your investment there, for instance. The journal ad folks will talk about branding and the length of time journals sit around on coffee tables. They'll make an impassioned case for why it makes sense. But you'll have the data.

Third, it's likely that changing marketing conditions will also change some of the data. And you'll have some of that to help plan for the next recession. In the meantime, imperfect as it might be, the data you have is what you have. Use it.

So what does this tell you? A content lead (per $100K of profit) costs you .05% of a trade show lead. And the runway to revenue is 6 months shorter!

Do you drop everything else? Not necessarily. But you certainly make some informed decisions. Perhaps you do drop paid ads, except for LinkedIn ads specifically focused on broad buying teams at certain target accounts with pending opportunities. Perhaps you shift journal ads from print editions to specific e-newsletter sponsorships, webinar programs, and sponsored content (all with clear attribution.)

And perhaps, in this example, you'd cut tradeshow expenses by 30% by reducing booth size and/or the number of shows. You'd also clarify expectations for the marketing staff that they were to focus more time on content creation and less on other activities.

Sales

The sales side may be a bit more ambiguous. Years of relationships and application expertise are valuable, but need to be recognized for what they are - an asset but not direct revenue production.

You may have family members and long-term loyal employees. And for most middle-market manufacturers the sales team is 5 to 10X as large as the marketing team.

You need an empirical approach that considers recent performance, and data-derived projections of future performance, in a framework that provides latitude for you to incorporate some value judgments. (We can help you with a sales force 'right-sizing' calculator that does just this. Ping me if that's of interest.)

You want the people who WILL sell in a recession (not those who have sold over the years as their friends and contacts have come to them for quotes in strong markets) in the right roles. That may mean letting several chronic underperformers go and hiring top replacements. (Remember, recessions are a great time to hire top sales talent!) It could be shifting some knowledgeable veterans to technical sales support roles and taking them off the road. And it could be hiring some business development folks to improve lead management and outbound prospecting.

Our rightsizing process can help you run various scenarios proactively to understand the changes you'd have to make depending on the depth of cuts you need. But remember, many of the insights are applicable in strong markets too!!

Redeploy a Portion of the Cost Reductions

Data can help you not only understand which marketing programs and sales deadwood to cut, but also where to invest more. And cuts provide an opportunity to redeploy spend.

You might:

• cut three chronically underperforming sales reps (probably with a loaded cost of $150K each including base, benefits, commissions, etc.) - $450K savings
• shift a senior rep with application knowledge but poor results to an application sales role (from $250K loaded to $150 loaded) - $100K savings
• cut trade shows by 35% - $250K savings

The resulting $800K savings could be allocated as follows:

• $80K (fully loaded) for a full-time staff journalist for content creation (to drive the most economical lead generation program)
• $180K (fully loaded - $90K ea.) two BDR for lead follow-up and prospecting
• $30K technology to boost sales effectiveness and efficiency
• $50K sales training
• $100K contractors to support important marketing functions like technical SEO (tied to the content lead generation results), competitive intelligence (an edge for sales in deals), PR (focused on specific industries that are growing), etc.
• $360,000 to the bottom line

Technology Is a Management Multiplier

The bottom line is that all of this is predicated on data and insights. Collecting that information requires the right tools, used fully. CRM isn't just a contact manager. Marketing automation isn't just for emails and landing pages. Attribution isn't a perfect science, but it's hugely powerful.

And none of it works absent clearly defined expectations and accountability.

But think about the powerful position you'd be in to make truly informed decisions - allowing you to conserve where appropriate and invest where impactful!

So why wait for a recession to do this?

Isn't it time to right-size your sales force and invest in marketing that works?