Ten years into their marriage, a couple goes through a bit of a rough patch. The husband isn’t feeling loved the way he used to. He reacts by making some adjustments to his investment. Date nights every Friday, with entertainment and a nice meal out, are reduced to sharing a latte once a month. The gorgeous box of hand-selected roses she learned to expect on their anniversary now is considered an unwarranted expense. So this year she receives a package of celophane-wrapped daisies from the corner store. Rather than spending an evening watching movies together at home, with a bottle of quality wine, he thoughtfully texts her while shooting pool at the pub with his buddies. Within two months, the old magic is back, and he begins to restore the former loving gestures.
Yeah right! That misguided soul should have a divorce attorney on speed dial. Any hope of regaining the love always requires more investment, not less.
Getting Back the Love (When Sales Take a Nose Dive)
A few weeks ago I was invited to a meeting with a prospective client. She wanted to know what we could do in marketing their company online, for “super cheap.” Apparently the digital marketing agency they were with was “too expensive”, and they were looking for a lower priced solution.
I was curious to know why she felt they needed to cut back on marketing. She told me that sales were down, so their advertising budget had to be scaled to match revenue. What she was describing is classic reactive marketing.
She went on to lament about the good old days, when their business did over two million in sales a year. Back then, they were spending upwards of ten thousand a month in advertising; no problem. Now, sales were barely $8,000 per month, so they had only been able to afford $500 a month for SEO, content and social media. Sadly, even that was now too much.
I did some quick calculations and discovered the marketing/sales ratio was almost exactly the same now as it had been in 2007. As she spoke, I realized that every time there had been a dip in sales, they had compensated by reducing their marketing budget. Sales then adjusted to reflect the reduction in exposure. They reacted to that drop, cutting marketing further. No surprise; sales dropped again… And now they were nearing the bottom of a downward spiral, laying off staff members and facing the very real prospect of closing a business more than fifteen years old. According to the ratio, proven over seven years, cutting the monthly marketing budget by a further 40% should reduce monthly sales to only $4,800 within 2 to 6 months. It wouldn’t cover overhead, the salaries of the company’s two principals, much less wages for the staff. It wasn’t my company, but the numbers sent a shiver through my spine.
My recommendation was for her to consider doubling the monthly marketing budget, and becoming very actively involved on their end as well, with my coaching. Leveraging resources in that way, they could achieve three or five times the interaction with prospective customers. She claimed that increasing the budget was impossible, because they were upgrading some of the machinery in the shop. (A vision of shiny new machines being sold for pennies on a dollar at a bankruptcy auction flashed across my mind.) I’m often amazed by the priorities of otherwise astute business people when they’re pressed against the ropes.
When sales take a dip, the only thing that will turn things around is… well, sales :-). Cutting back on visibility will only cause them to dwindle further. When cash flow runs thin, it’s easy to lose site of that.
Robert Herjavec commented on Shark Tank recently, “Sales is the life blood of any business.” Without marketing, and new customers, a business will die. Some small companies try to build market share on referrals alone. Relying solely on word of mouth, they often grossly over-service their existing clients to secure new leads. They refer to this a “free” advertising. New customers unfortunately will come on board, expecting too much for far too little, so it can be a costly and unsustainable model. One way, or another, there will be a cost of acquisition in expanding a customer base.
A downturn is the time to invest more — become proactive — forging ahead instead of retreating. I have seen a full-on effort in content development and social media engagement, coupled with passionate follow-up by the company’s sales and support staff, turn the tide even in the eleventh hour. By dramatically increasing interaction with potential buyers, there is always hope for a comeback.
Back to You
Have you ever felt you could not afford to invest the time or money ongoing marketing required? (I have. Been there, done that.)
Have you ever found yourself entering the dreaded downward spiral of diminishing returns? When revenue falters, do you blog more, or less? Engage more in social, or less? Hire a consultant or marketing pro, or let one go?
Did you ever over-service existing customers, desperately trying to hang on to them, while only breaking even, or even losing money, because somehow that seemed cheaper than reaching out for new ones?