Cutting digital marketing spend: When it works and when it doesn’t

Challenging times hit every business, forcing them to re-evaluate spending and figure out how to survive. When it comes to marketing, you can maximize the return on investment by knowing what to cut and what to leave in. 

The secret to pulling this off is understanding how to reduce marketing spend without affecting your business negatively. This can only be undertaken once you have complete visibility on where you’re spending every penny - and the results from it.

With proper and informed cuts, and some budget shifting, you will see growth in returns and engagement with existing and potential customers. 

When budget cuts don’t work

Foregoing data when optimizing your marketing budget can have damaging consequences. During the 1990 and 1991 recession, McDonald’s decided to cut its costs by dropping advertising and promotion. Taco Bell and Pizza Hut, however, kept their budgets strong. When the recession subsided, Pizza Hut and Taco Bell had seen double-digit growth in sales, while McDonald’s sales went down. 

Simply cutting your budget won’t mitigate your losses. Instead, focus your time on finding out if your marketing efforts can be improved. More often than not, underperformances in key points of your funnel are the most damaging trends to your business. 

You see, optimizing your budget is not about cutting expenses completely. It’s about recognizing where you’re overspending and where you’re underspending and adjusting your budget allocations to fit your goals. Budget cuts simply don’t work when you don’t know why you are reducing spending.

We’ve said it once, and we’ll say it again. It truly is pivotal to understand the fundamentals and intricacies that dictate a marketing budget. By recognizing your strengths, weaknesses, and areas for growth, you can use the recession to achieve even greater success.

That brings us to the steps a business should take when trying to get more bang for its buck. So first let's look at when budget cuts don't work and what to do instead. Then we'll dive into how you can reduce your marketing spend without damaging your business. 

Why you need to keep your digital marketing spend during challenging times

Challenging times happen abruptly, causing a business to go into ‘reaction mode’, dealing with issues like:

• Falling or zero profits
• Customer acquisition problems
• Supply line interruptions
• Pressure to turn things around

Modern digital marketing tactics and strategies are more efficient than ever, which means you can implement them on a small budget and still see gains. During challenging times, as we saw in 2020, trends such as online shopping can go up. That is why your marketing ad spend needs to stay operational and optimal--it ensures your survival until the economy picks up again. 

When needed, here are some changes to make that do not involve gutting the entire budget:

• Keep your ad spend up after evaluation for non-optimal resource use
• Lean toward the creation of appealing content to reach customers effectively 
• Use more resources in retaining customers you already have to keep the competition at bay
• Keep your campaigns keenly focused to reach smaller markets with relevant and timely messages, since they are usually hardest hit in a recession

With the right combination of content, social media, SEO, inbound, PPC, and retention marketing, you can keep your presence active until things pick up. 

How to cut digital marketing spend without damaging your business

In a 2020 Spend Survey by Gartner,  researchers found that budgets for marketing technology and digital channels will continue to grow, even though 2020 saw many spending cuts, furloughed workers, and shuttered offices. 

The reason digital marketing budgets across most industries continue to grow is because it is the most effective way of reaching potential and existing customers. 

How to review and fix your current budget

The process of evaluating your existing commitments involves looking over all the operation and non-operation marketing resources that have already been allocated to an aspect of getting more customers and keeping existing ones. 

You should go through all of the allocated resources and ensure that they are essential and have great results. For instance, a B2B business with a customer worth $20,000 should only use 5% of that total in acquiring their customers (about $1,000).

Re-evaluating existing commitments can let you know if there are resources you need to repurpose or cut, based on efficiency and established budgeting facts. 

After that, the next steps become relatively easier:

1. Begin by making simple cuts where necessary. Use analytics tools to find the low producers and cut them first. The easy cuts involve areas that you are completely sure about. 
2. In planning your budget, focus on funding quality marketing strategies instead of throwing out as many strategies as possible to see what sticks. 
3. Always research the market to find out what the best practices are. Since the market keeps changing, innovations come along that can offer improved ROI. Follow trends, news, conventions, official data resources, and technologies to stay ahead of the competition. Reading updates from the platforms you already use, will keep you in touch with the times and ensure you stay ahead of the curve. 
4. Enhance the profile of your ideal buyer. In finding out who the ideal customer for your business is, you can incorporate more data points to expand the definition and 
5. Update your marketing data to ensure that you are pointed in the right direction. Data organization makes it easy to ensure that you are not spending any money on marketing efforts with little to no results. 
6. Use the free aspects of social media to your advantage. Even though you have to pay for a lot of the tools you use, you need to leverage what will save you money. Strategic and compelling posts are free to make and post. Relevant hashtags can also attract more customers to your content. Don’t forget,  a commitment to creativity can help you perform just as well, or better, than big-budget competitors.

After finding out what you can incorporate, how do you draft a budget for your future with performance in mind? 

Craft your future budget based on key performance indicators

Digital marketing spend should be guided by well-defined KPIs that track performance to let you know if your strategies are working effectively. Some of the KPIs are correlated directly to the number of resources you allocate to key areas of the budget. 

Knowing the KPIs and what they measure will help a business draft a budget that is as efficient as possible. Let’s go through some of them.

• Revenue per visitor (RPV): RPV is the amount of money spent by the customer you get. This KPI shows you directly which marketing budgeting decisions you make lead to money. The higher the number, the more your ROI climbs. 
• Conversion rate: If you cannot track money, you can track your conversion rate. This KPI measures the number of customers who complete a purchase or a process you take them through. If you know where, along the process, they stop or leave, you can pinpoint what is wrong and fix it on your budget.
• Customer acquisition cost: How much money are you spending to get a customer? We mentioned earlier in our segment on ‘existing commitments review’ that a business has an efficiency cap on how much it can spend to get a customer. Sometimes, the data used is based on how much they spend and how much it costs to get them to buy something. The goal is to lower the cost as much as you can, without hurting your conversion rate or other metrics. 

Pro Tip: The Prophetic ‘Customer Lifetime Value’ (LTV) KPI

The LTV is an important KPI that predicts which customers offer you the most value throughout their relationship with your business. It is about finding out how much money you could potentially make off of one customer over their lifetime shopping with you.

There is a catch, though: measuring LTV is not simple and only about 40% of companies can do it. The only way to do it is by collecting information about your customers and using it to create a predictive model that can extract and extrapolate data to predict customer behavior.

If this is something your business is capable of doing, it will help you gain an upper hand in prioritizing customers who will spend more on your business so they stay for as long as possible.

Moving forward with your optimized budget

There is a possibility that your digital marketing spend will only be considered optimized if you improve it or add more resources. However, as you work toward optimization, let facts and data guide you. Your money is too important for guesswork or blindly cutting off resources. To avoid losing your way, consider outlining all the digital marketing strategies you have in action, their benefits, and which ones are not performing well enough to warrant additional funds. 

Keep in mind that employing specialists who have a better understanding of marketing and KPIs will give you a quick and well-calculated start. They can lay out the right strategy for you, execute it, and when running smoothly can pass the reigns back to you, if you’d like.

To start you off on this journey, remember to keep these top tips on planning for recessions in mind. We are confident that with proper spending reduction, you will see benefits that have not been visible to your business until now. 

Don’t know where to start? Get in touch today.