Global inflation, a looming recession, supply chain challenges, and overall economic turmoil all have B2B companies tightening their belts as they face a drop in revenue and shrinking profit margins. A recent survey revealed nearly 60% of B2B marketers report that their budgets will be cut or stay flat throughout 2023.
Corporate CFOs that want to maintain their organization’s profitability are analyzing all the cost-cutting opportunities at their disposal, including workforce reductions, hiring freezes, postponing new initiatives, and exiting less profitable lines of business.
But not all cost-cutting measures are created equal. A dollar spent in one part of your business, such as your breakroom snack budget, might generate significantly less value than a dollar spent elsewhere, such as the utility bill you need to literally keep the lights on. So why is it that the first thing almost every CFO seeks to cut at the first sign of a downturn is branding and marketing efforts?
On the surface, the instinct is understandable. Slashing the marketing budget is an easy way to preserve unspent cash. But it’s only a decision that would make sense if marketing was purely a cost center, such as human resources, IT support, facilities management, accounting, or admin.
However, this focuses only on expenses, ignoring the unparalleled ability marketing and branding initiatives to drive revenue. The fact is that marketing is responsible for driving both short-term revenue and long-term value creation, making marketing one of the most critical profit centers in the business.
By evaluating your marketing budget through an investment lens, it’s easy to see how every dollar you spend on branding can generate some of the highest ROI your business can achieve. When spent effectively, each marketing dollar can generate leads and sales worth far in excess of the initial cost. Many of our clients have a 10:1, 20:1, or even higher ROI on their marketing spend when factoring in both direct sales and brand value creation. Can your facilities restorations say the same?
Where is marketing on your balance sheet?
As one of the country’s most-awarded B2B design agencies, all of us at Spire take creativity seriously. But make no mistake; we know that our work isn’t about beautiful design, creating connections, or telling impactful brand stories. It’s about generating revenue—full stop. (We just happen to know that beautiful work, creating connections, and telling impactful brand stories is the most effective way to do it!)
Marketing isn’t an expense, it’s a profit driver.
What’s surprising to me is that even though most B2B CMOs know that their work is generating significant positive ROI, their CFO colleague still operates under the impression that marketing is an expense instead of a profit driver. While I am always inclined to take the side of the CMO in any argument, in this case, I understand the perspective of the CFO. By nature, the CMO speaks the language of marketing, focusing on things like segmentation, personas, targeting, positioning, and creativity when engaging with their C-suite partners. While these are all critical to performance, they are difficult to quantify, which can make the value of branding feel imprecise or even questionable when it’s time to cut costs.
But assuming your marketing is effective, to cut your marketing budget means a negative impact on the very things your CFO prizes above all else: market share growth, short-term revenue, long-term customer lifetime value, and overall business competitiveness.
CMOs need to take this opportunity to proactively engage the CFO, CEO, and other leaders to guide the business value of branding. Beyond its ability to drive sales, a strong brand is directly correlated to a company’s intrinsic value. An analysis by the Marketing Accountability Standards Board found a strong connection between a company’s marketing spend and its business value, with brand assets driving 19.5% of enterprise value on average across all companies. Think about it; for many B2B businesses, their brand represents more value than their largest asset, most important customer, or their top-selling product.
Yet, because the brand isn’t listed as an asset on a balance sheet, this can lead your CFO to make a decision that’s counter to their overall objective—preserving the strength of the business—by cutting marketing at the time when it is needed most. When you cut your marketing budget, you not only impact your long-term growth, but short-term sales too, as you disappear from the minds of consumers. This allows more aggressive competitors to steal your current customers while capturing your future prospects. By the time the downturn is over, and the CFO restores the budget, it might be too late.
While preserving the marketing budget can be initially hard to rationalize when other departments are making sacrifices, the short-term business preservation and long-term value that marketing generates more than justifies preserving or even increasing branding efforts in a downturn.
Valuing brand value
In a perfect world, brand value would be a carefully-tracked financial metric. Shareholders would demand to know how the companies they invest in are building brand value, and would use that metric as a way of evaluating potential investments in the same way they use P/E ratios, free cash flow, debt-to-equity, return on equity, or earnings growth.
Unfortunately, we don’t live in a perfect world. In fact, I would be willing to bet that most B2B CMOs have no idea what their brand is worth to their business. But while I would usually see this as a disappointment, in this case, it can create a once-in-a-decade window of opportunity for those who rightly understand their brand as an investment. For every competitor that treats their brand as a cost and makes corresponding cuts to their marketing budget in response, this provides an opening for another business to take advantage by further investing in their brand.
In the stock market, there is a saying: “The time to buy is when there is blood in the streets.” In other words, buy low when others are panic selling. For B2B companies, this is a blood-in-the-streets moment. All businesses will need to preserve cash. Those that see branding as a cost will decimate their marketing budgets first, and as a result will struggle to attract and retain customers. On the other hand, the business that views marketing as an investment will happily maintain or even increase their marketing spend in order to maintain their client base, nurture prospects, and gain market share.
Keep this in mind: The long lead time of most B2B sales means it’s quite likely we’ll be out of the downturn before a prospect you engage today will make their way through your sales cycle and be ready to buy. By continuing to market to prospects now, you’ll be perfectly positioned to make the sale as soon as their budget is restored and they are ready to buy. And your competitors will be sluggish to return to their market presence.
The bottom line? Treat your brand like an asset, not a line item on an expense ledger. Anyone who proposes to cut the marketing budget back, like the CEO, CFO, or other department leaders seeking to preserve budget for their own initiatives, must first answer how their proposal will impact the organization’s current and future financial outlook. By closely linking marketing investments to your organization’s overall value and financial performance, you can ensure the company doesn’t inadvertently cut the very thing that will help you survive the downturn that caused you to make the cut in the first place.
Steve Gray is a partner and chief operations officer at Spire, one of the country’s most-awarded B2B branding agencies.
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