Reducing marketing spending will, in most cases, only make a bad financial situation worse.
Early on in their startup’s life, many entrepreneurs find their expenses outpace their revenues. That’s especially true when you’re bootstrapping your startup.
That’s why for many entrepreneurs, growth is the only path to early stage success (although there can be great reasons your startup should not try to grow, at least for a period of time).
Yet sometimes growth — especially rapid growth — isn’t possible. When costs exceed revenue, sometimes your only option is to cut expenses: Inventory. Supplies. Product development. Fixed costs. Variable costs. Marketing.
Whoa. Not so fast.
Unlike many other costs, marketing expenses are relatively easy to cut. You can pause a Facebook ad campaign. You can shutter email or social media marketing campaigns. You can put traditional marketing campaigns on hold.
Sounds great but in the process, you may only increase your startup’s burn rate. It sounds simple, and it is: without sales, you don’t have revenue and without revenue — especially if you’re funding your business with that revenue — you soon won’t have a business.
Keep in mind there’s a difference between efficient marketing and simply throwing money at acquiring customers. While a high customer acquisition cost (CAC) can make sense if new customers generate consistent, long-term revenue, most startups can’t afford a high CAC.
We made that mistake with our business card product. Since customers loved our logo product, we decided to scale rapidly — and in the process paid too much for each new customer. Because we relentlessly tracked key metrics, we recognized the problem and quickly reined in our marketing expenses. Had we not, the company might have failed.
But that didn’t mean we eliminated our marketing expenses. After all, smart marketing is the lifeblood of any business.
So when you miss sales targets, or when you need to cut costs, make sure your marketing costs are not the first expense you cut.
Why?
You can almost never save your way to profitability.
Unless your startup’s spending is totally out of control, it’s almost impossible to save your way to profitability. When fixed costs are high, when cash flow is poor, when labour makes up a major portion of your costs, the only way to become profitable is to increase sales.
And what is the best way to increase sales?
Marketing is the ultimate Catch-22 for a small business.
A startup is like the cliché about a tree falling in the forest: if no one hears about your products and services, your top line won’t make a sound.
It’s almost impossible to raise awareness, generate leads, land customers and build a brand without spending money on marketing. Sure, word of mouth helps, as do referrals. But early adopters — much less raving fans — must come from somewhere.
And that “somewhere” is marketing.
Effective marketing requires time and repetition.
While the “rule of 7” (in short, the idea in which potential customers need to be exposed to an ad seven times before they will act) might be outdated, frequency and repetition are still important. Many potential customers will not act the first time they see an ad, a promotion, or a piece of content marketing. Many will not act the second or third time.
Value propositions take time to establish themselves. Brand awareness takes time. While direct-response marketing can often produce short-term results, most forms of marketing require longer-term investments in money and time to pay off.
That’s why cutting your marketing expense might be the worst thing you can do — especially if all the groundwork you have laid is about to pay off.
The contrarian approach is often the best approach.
A number of studies show that companies who increase spending during a recession enjoy greater gains in market share than those who cut their advertising investment. In fact, when markets expand, market share is much harder to come by. If your industry as a whole is experiencing a downturn, that may mean the right approach is to increase your marketing spending.
But what if your industry is doing fine and your startup is not?
Take a hard look at your products and services. Make sure your business truly fills a need or solves a problem. Make sure your business provides excellent service. Make sure your operations are as streamlined and efficient as possible. In short, make sure your business is taking care of business.
If it is, don’t let marketing be the first thing you cut.
If you provide great products or services, helping people understand the benefits you provide — and the difference you can make in their lives — could be the one thing you can’t afford not to do.
Feature Image Credit: Getty Images
