‘The bug’ has given us a once in a generation opportunity to make change. Things that may not have been possible, have suddenly become not just possible, but necessary.
While most of the focus is automatically on cutting costs, the greater long term benefit is in the optimising of current expenditure. Arbitrarily cutting costs, as often happens in extreme circumstances, always results in throwing out a few babies with the bathwater.
Revenue generation, the combination of sales and marketing budgets, is usually the first to feel the knife when times get tough.
However rather than just ‘cutting’ across the board, or making the obvious decisions by cutting the biggest items first, consider the opportunity to optimise, and how this will deliver cost savings. More importantly, such an exercise can increase the productivity and long term impact of the investments you make, as well as reducing costs.
Classifying all expenditure into ‘buckets’ so that you can then allocate a weight to their relative value, and concentrate on those from which you can extract productivity increases, is a sensible first step.
All expenses can be classified in two major axes:
- Fixed to variable or discretionary expenses. Those that are not able to be reduced or improved, to the extreme of expenses which are entirely discretionary, such as media spend.
- The second axis is tactical to strategic. The short term expenditure which can reasonably be expected to deliver a return in a very short term, to the other end of the scale, the strategic expenditures which are normally those that appear to be in the ‘important but not urgent’ pile.
The manner in which you go about optimising your expenditure will be a function of your competitive context, the financial and strategic position you are in, and the strategic priorities in place. It will also reflect the attitude of the person delivering the instructions. Therefore, it is also a measure of your effectiveness at arguing the role that investment in marketing has to the health of the enterprise.
Your fixed marketing costs are items like employee costs, marketing software licences, retainers paid to service providers, and are often overlooked, or just cut arbitrarily. In the absence of a critical review, mistakes will be made.
Discretionary costs are often heavily weighted towards media, and they are very easy to cut. This will deliver a short term cost saving while often compromising the commercial sustainability of the enterprise.
History shows us that those who continue investing thoughtfully in the tough times, benefit hugely as the better times return.
When instructed to cut costs, do so with an intensive focus on the relative revenue and margin generating productivity of the cost you are about to cut, and to the long term impact that will have on the enterprise.
