Why You Must Increase Marketing in a Recession or How Recessions Destroy Sales Metrics

I have of often read, and had heard many a pundit declaring that in a recession you must reduce your marketing spend. Based on my experience with previous recessions I have strongly opposed these views. I do have to say, that it is often very difficult for businesses to maintain their sales and marketing spend when times get tough. However, as you will see, the impact of a downturn in the economy plays havoc with established sales and marketing metrics. The effect of this should be to demonstrate clearly that in fact a company needs to increase its sales and marketing activity if it wants to survive a recession.

Philosophically this has always made sense, as for at least as long as we are going on a downward curve, there are more sellers than buyers. Those buyers, because they are short of money, will spend less on purchases to help them balance their reduced income. What I have tried to do is to quantify the effects of a recession on sales activity. I have made some simple assumptions which are as follows:

1. To continue trading the company needs to achieve three sales in a month.
   
2. Its success rate from prospects to sales is 33%.
   
3. To get a meeting with a prospect requires ten cold calls.
   

So in a normal sales environment our simple model would deliver this:

Phone Calls	to	Prospects	to	Sales
100	0.1	10	0.3	3

Essentially what we are saying is that you need to make 100 calls to get 3 sales. Now let's assume we get some softening of the economy and things get more difficult so instead of getting 3 sales for ten prospects we only get 2. So to keep up our 3 sales per month we now need 15 meeting. Because the conditions are a bit tougher it gets a bit harder to get meetings and we now need to make around 16 calls to get an appointment. Suddenly our model looks like this:

Phone Calls	to	Prospects	to	Sales
250	0.06	15	0.2	3

 

The result is that we now need to make 250 calls for our 3 sales.  Lets now go one step further and accept we're in a full blown recession rather like we have now. Our success rate is half what it is in normal times (These new metrics based on the evidence from some of my clients and further anecdotal information) . You end up with figures that look like this:

Phone Calls	to	Prospects	to	Sales
400	0.05	20	0.15	3

You can see that the implication in this simple model is quite devastating. It clearly impossible to go from 100 call per month to 400 overnight if at all or in the longer term find a regular 20 prospects per month. Typically sales will go down; just how far down depends on how well the sales team is managed and the local market (sector) conditions. Many companies would soon exhaust they’re prospect list at that level of calling, which partly explains why it doesn’t happen.

So how do we protect ourselves in these difficult times? Well first of all, don't panic! Secondly, before you go rushing off to contact people, you need to understand where you are. What I mean by that is you have to have some of information about the current performance of your sales and marketing activities. Your baseline should be to understand what your current sales of metrics are. If you don't have that information one simple way of creating some is to take the total number of bids, quotes, proposals you have made divided by the number you have won.

Also, make your marketing accountable, that is critically analyse the return on investment you get from your various marketing activities. In some cases this will be easy, for example if you use yellow pages or Yell.com you have their invoice which tells you the cost and you should be able to work out how much business you got from that investment. In simple terms than if your return is less than your investment, stop it. Stop it now if you can. If you can't, stop it as soon as you can. With those more fuzzy situations where you spend time and effort rather than cash you can still assess where you get the best or least reward for your effort.

Only now that you have this information in your possession should you go out and up your marketing and sales. This simple exercise will have done two things; firstly it will have told you what your baseline is which will enable you to understand your effort to sales ratio. Secondly, it will have identified your most productive marketing channels. You now need to go out using those channels and communicate with your best customers, your good customers, and then the rest of your customers to identify sales opportunities. From here you need to move it into new business development. Choose your best channels first as they are most likely to deliver the quickest results. And set yourself targets for activity to see what your new sales metrics are, and if you can, pursue them relentlessly.

It will be tough in the early days, but if you stick at it while others fall by the wayside you will have created a stronger sales and marketing base to take you into the next upswing.

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