Marketing Cuts Have Consequences

Author: 
James Obermayer

It was early September, late in the afternoon on a Friday, as I remember, when the company president called me into his office. It was a medical device company that had gone public the previous year. Sales were going well, so far.

“We have to cut the budget substantially in this upcoming last quarter; I need $400,000 from marketing. Please get back to me on Monday and let me know where you can cut.”

This was a 40-person direct sales force driven by leads. The marketplace was private physicians — about 200,000 in all. We had to pump 1% of those into the pipeline each month. Yes, we had a CRM system, and yes, we knew the closing ratios. We had a well-oiled machine for lead generation. We projected how many qualified leads we needed and there was an inside telesales department of eight people that fueled the system with qualified leads, including a time frame to buy.

It took me a moment to respond. “I’ll deliver what you need, but some of the budget is committed to trade shows and a large percentage of the dollars are essentially spent. Some projects are in process, and we’ll see what we can save if we cancel them. Others projects are just starting. Oh, by the way, if we take dollars from lead-generation plans, profits will drop further as sales decrease. It’s complicated. You may want to take the money from elsewhere.”

Entrepreneurs don’t like being reminded that their first impulse isn’t always the best, but it was worth the risk.

I showed up as scheduled at 9 a.m. on Monday and presented a one-page report.

“We can cancel the 100,000-unit direct mail project we have scheduled for mid-September,” I said. “We’ve spent some money on creative which will not be wasted, but the printing and mailing fees can be saved, which will be about $95,000 for the self-mailer.”

“Great,” he said with a smile. “Next.”

“Before we go on to the next item, the 100,000 units of direct mail would have given us 2,000 raw inquiries and 900 potential buyers. If this is not mailed, we’ll lose $487,125 in the last quarter and $1,434,375 over the following nine months of next year. The total unit sales lost will be 225 from 720 possible buyers.

“Because we’ll have fewer leads, the salespeople will try to make their quotas and may recover some of the sales; probably not all, but some, which further reduces profit. The added damage comes in the following three quarters, unless we increase spending after the first of the year to make up what we’ve lost in potential. Do you want to make this cut?”

“Hmmm, I guess not,” he said with a frown. He knew what was coming next.

“The fall is prime trade show season. We’ll be able to cancel four shows, which cost us $240,000 all-in with travel and our square-footage. We’ve spent about 50% of that already, so actual savings is $120,000. The downside, however, based on last year’s reports, is we’ll lose 1,200 raw leads, 540 possible buyers and 135 sales. That translates to a loss of $286,875 in sales in the last quarter and $860,625 in the coming nine months.

And so it went for a few more items, which were minor in terms of business lost.

“I know,” I said, “you want the profit to look better for the investors, but at the same time, we cannot guarantee the top line. It will drop. The two are connected.”

“Yes, I know they’re connected,” he said with a sigh. “Leave the report. I’ll get back to you tomorrow.”

He did get back to me via email, and his only comment was, “Leave the lead-generation program alone. I need $75K from you. I don’t care where it comes from. I will try to get the rest from other departments.”

I didn’t envy the position he was in, but he had to be reminded of the consequences. The marketing lead-generation budget is a string attached to sales results. Tug on the marketing budget string and it’s bound to have a short- and a long-term effect on sales...all downward. He found the money elsewhere. We never spoke about it again.

James Obermeyer is publisher of Funnel Media Group and founder of the Sales Lead Management Association.