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It is no surprise to anybody that we are living in a different business climate in the wake of the Coronavirus lockdown. In the last few weeks, many of us have seen customer demand fall, revenues decline, free cash flow dry up and the stock market crash. This means we need to find every penny we can, to keep our businesses afloat. I am sure many of you have already cut your payroll expenses, based on the record unemployment filings in the last couple weeks. But, you may not have given your marketing expenses the attention it deserves during these troubling times. This post will help you “reset” your marketing campaigns, to help ensure they are contributing positive cash flow again . . . as most likely, they are not today!!
Marketing is typically your highest expense outside of payroll. In normal markets, you are spending around 10-30% of your revenues in sales and marketing related investments. Which is fine in good markets, as it is most likely driving you a healthy bottom line profit (or at least breaking even). But, let’s say revenues just fell 50%; if left unchanged, your marketing investment just doubled to 20-60% of revenues, which most likely is going to result in huge losses for your business. So, you are going to have to reset your marketing budget to “right-size” the investment, in light of the reduced revenues. In this example, you most likely need to cut your marketing spend in half.
But, which half do you cut? Hopefully, you have good campaign tracking in place, and you know which campaigns are driving more profitable leads than others. So, sort your marketing efforts in order, from best performers to worst performers, and take the hatchet out and cut all campaigns that are on the bottom half of the past success list.
In most cases, I would suggest not taking your budget to zero. That could be the equivalent of slicing your own throat, as without marketing spend, new leads will not be coming into the business, and in turn, no new revenues will be coming into the business. The only exception to that rule is if you are in an industry that has entirely been decimated by the market conditions. Think about the restaurant industry in the wake of the Coronavirus. In that case, it may make better sense to put your entire marketing efforts on pause, putting the business into “hibernation” until markets improve.
Once the budgets have been reset, now you need to reset the specific campaigns that were running within those overall budget categories, as most likely their performance today, will be behaving very differently from where they were in normal market conditions.
Let’s use a case study from my Restaurant Furniture Plus business, as an example. In the wake of Coronavirus, our contact rate (calculated as inbound calls/emails divided by website visits) cut in half. That means on the same amount of spend, we are only going to see half the amount of sales as we were seeing during good times. This further means our cost of customer acquisition (CAC) just doubled!! And, as most internet marketers know, if your CAC just doubled, you most likely just watched your campaign devolve from a small profit to a big loss, with the snap of a finger.
So, don’t take anything for granted. Don’t assume your historical campaign metrics will hold up going forward. You are going to have to restudy everything. That may result in you re-optimizing each of your campaigns as if you were starting from scratch again because that is in fact what you are doing . . . starting from scratch again to account for learnings from the new market conditions. So, relook at every sub-campaign within a marketing channel and make sure it is still pulling its weight. If not, change the settings or shut it off.
Reset Agency Expectations
If you have a good advertising agency that wants to protect its long term relationship with you, they will understand that market conditions have changed, and they should work with you in coming up with a win-win going forward payment plan together–both in terms of your contractual media spend, and their agency fees. Just like the real estate landlords are working with restaurant owners to forgive rents, while their restaurants are closed. So, this is a good time to change any fixed fee overhead at high levels, into variable fees that move up and down with your media spend, most likely at much-reduced levels. And, if you need to shut off your campaigns entirely, set up a month-by-month check-in meeting with your agencies, so when the markets do finally improve, they are all set to go, to get the campaigns restarted again.
Consider New Target Markets
Continuing with my Restaurant Furniture Plus example from above, as you can imagine, trying to sell furniture to restaurants given the impact of Coronavirus, is like trying to push water uphill . . . it just ain’t gonna happen!! Based on our research, it could take up to two years post the pandemic ending for restaurants to get back on their feet, with enough cash flow to start investing in their businesses again.
So, what does that mean–we need to identify new markets to sell furniture. For our business, that may mean opening up the government, school, or corporate furniture channels, which will recover faster than the restaurant channel will. Or, instead of focusing our online marketing efforts on restaurants in Google’s keyword search results, we focus our efforts on consumers that may need furniture for their homes in Google’s shopping section. So, study your individual businesses and figure out what works best for you, and pivot your attention into those new areas.
We are living in a crazy post-Coronavirus world today. What made sense a few weeks ago, from a marketing perspective, most likely no longer makes sense today. You are very much relearning your business metrics from scratch, much like a startup company would. So, the sooner you quickly audit your current marketing efforts and reset them, the less time you will be flushing your limited and precious capital down the toilet!!