How to cut budgets effectively
The 3 important rules to follow
Last week I got an email from a client, informing us that in a round of layoffs, they had let go of ~25% of their team.
Marketing wasn’t as heavily impacted, but still. They had to cut their marketing spend down to size, too. So that’s the question I want to address in this email:
How to adjust your marketing strategy, if you’re forced to cut costs?
In short, there are three important rules for cost cutting, that I'll each elaborate on below:
Clean up
No slicing
Trim your bets
Let’s jump in…
Step 1: Clean up
Let's do the easy basics first: as you're growing, you'll almost inevitably rack up costs on tooling, experiments and other accumulating marketing fat that you can trim.
Simply make an export of every last line item of marketing expenditure, and go through it all. Do you need all those seats on that SaaS subscription? Is anyone still using that license? Can we turn off that under-performing ad campaign?
Clean up alone likely won't be sufficient to satisfy your CFO, but it's the non-painful place to start.
So do that first.
Step 2: No slicing
Say you need to cut your budget by 30-40%. The easy (but wrong!) way to approach this, is to just take all your channels, and roughly reduce spend by 35% on each. Dial down the paid ads, cut down the agency hours, reduce the volume of content you produce, etcetera.
I'll call that the "cheese slicer" approach, where you just go take little slices off from everything, until everyone is complaining and your CFO is satisfied.
For the love of God, don't take that path!
It's tempting because it's intellectually easy (it seems like you don't need to really make any tough decisions), but many things perform worse when they're under-resourced: your content won't be as good, your website will suffer, your ad campaigns won't get the attention they deserve to keep performing well, and so forth.
What you do instead:
You trim entire channels
Rather than taking 30% off from everything, make the tough decisions to completely discontinue certain campaigns or efforts. You prune under-performing branches to the trunk, so that other branches can get the juices they need to keep growing.
Don't do everything half-assed.
Do half the things.
It's a tougher decision up-front, but makes life exponentially easier moving forward.
We recommend you bite those bullets.
Step 3: Trim your bets
Finally, you need some framework to decide which things to cut, and what to leave. Here's how we think about it:
First, preserve the core revenue drivers. Allocate 70-80% of your budgets to whichever channel you're certain drives the bulk of your current revenue. Don't cut the core machinery that the business relies on to keep breathing.
Second, allocate 20% to experimentation. Because you still need to grow, and you need an answer to how the company can be 2x, 5x or 10x bigger. But instead of running 3 parallel experimental channels, you'll probably only be able to do one or two at a time. Focus!
Leave 5-10% for brand investments. You don't want to fully hollow out your brand and only do performance. Keep some baseline budget available to make sure your website looks fresh, to keep evolving your sales funnels, and generally mature the brand.
– – –
There's never really a nice way to cut budgets by 30% or 50%, but there are certainly paths that are better and paths that are worse. In general, you want to make the tough decisions upfront.
Use the pressure as forcing function to actually make strategic decisions.
It's in line with an excellent piece of life advice from Naval Ravikant:
Easy choices; hard life.
Hard choices; easy life.
Same is true in marketing.
You choose.
—Pieter