Marketing in a recession: How to make marketing investments when the economy is rough
Last updated: May 6, 2022
Winter is coming. The economy is, sooner or later, going to go into recession. This will be rough for SaaS companies.
Over the past few years valuations have been rising, investment rounds have been raised hastily and B2B SaaS companies have mostly been in hypergrowth mode. Many companies have already started making significant lay-offs and, to those who are invested in watching the health of the tech economy, it feels like the tip of the iceberg.
During periods of panic about the health of the market, SaaS companies worry that they will not be able to sustain their burn rate and look for ways to tighten their belts.
Marketing spend – both capital cost (ad budget, general marketing spend) and talent budget – is one of the first expenses to be cut during times of economic worry. Many SaaS companies believe marketing to be a cost center rather than a profit generator. Others believe that they already have a working channel and it will continue to ‘tick over’ without management or additional investment.
But both of these views are flawed.
During times of economic uncertainty, B2B SaaS companies should increase their marketing spend so that they capitalize on the vast opportunity presented by less secure competitors in their markets.
In this article, we’ll look at:
- Why companies think that marketing should be first to go
- Why companies should approach marketing as an investment portfolio
- How to make better investments now and in an economic downturn
By the end of the article, you’ll have a much better framework to use to assess marketing investment now and in the future.
Struggling to plan your marketing investment over the next 12 months? Schedule a Free SaaS Scale Session to find out how we can help you build a stable strategy and grow during a recession.
Why SaaS companies kill off marketing first (and why it hurts)
It’s a story that has played out time and time again: SaaS companies frequently kill off marketing first when there’s a threat of an economic downturn.
Unfortunately, over the years, marketing has been seen as a cost center rather than a profit center. Especially in B2B SaaS, it’s all too common to see executives take a diminutive and narrow view that all their SaaS marketing team is doing is running ads and writing blogs.
When reduced to blogging and ad buys, SaaS companies see marketing as a commodity that can be turned on and off at will.
Sadly, this is usually just as much a consequence of a marketing leader’s ability to frame their expenditure as it is executive myopia.
Another common reason that marketing is culled first is that companies see they have a working channel (usually Organic Search) which sends them high volumes of traffic.
So, the argument goes, if that’s the case, why do we need marketing? Won’t we just continue to get the same traffic and customers without further investments?
The reality is far from what they expect it to be. Search rankings decay quickly. Bidding strategies become inefficient. Algorithms change all the time and what works one quarter, decreases in efficiency in the next.
Organizations that cut marketing investment quickly discover that the gains their marketing team had made over the previous quarters are eroded when they’re let go or defunded.
Finally, marketing is sometimes seen as a cost center because the marketing leadership have focused on driving results that don’t drive the business.
It’s extremely common to find SaaS companies:
- driving MQLs generated without considering how that number plays into a wider strategy
- improving keyword rankings without linking those rankings to trials started from content
- optimizing for CTR on paid media without considering on-page conversion rate
Unfortunately, whatever the reason, companies that cut marketing spend tend to suffer in the medium and long term.
While at first there may be little impact on the business other than the cost saving, over time, pipeline surety will decline significantly, deal flow will dry up and sales will be the next resource to be cut.
Even in product led businesses, cutting marketing will decrease revenue growth in the mid- to long-term.
The reason for this is that even though the majority of the conversion revenue is attributed to the growth and sales teams, marketing is the key driver of acquisition. Without acquisition, there is nothing to convert.
In PLG companies that cut marketing, there is no-one to create and maintain awareness building activities which ultimately develop the pipeline of trial or freemium signups that is needed to sustain the model.
Why companies should approach marketing as an investment portfolio
We’ve just explored some of the reasons why marketing is one of the earliest line items on the budget to be cut in a tough economic environment.
Now let’s take a look at why SaaS companies should change their perspective on marketing overall.
There’s a lot of nuance around ‘cutting marketing’ spend for SaaS companies.
For example: Investment in brand is very different from investment in a conference marketing program.
While it’s easy to attribute meetings booked with the spend on a conference booth at an industry event, the long term benefits of brand building may vastly outweigh the investment and perform better than the direct response activities like conference booths.
Similarly, companies frequently cut SEO program funding quickly when the market looks like it’s souring. After all, it is tough to build a really effective attribution model around SEO investments.
But over time, SEO is one of the best investments that you can make as a SaaS: the CAC from organic search decreases over time and it has the second order effects of vastly improving brand visibility (a further cut in CAC).
The parallel with financial investments is deeply relevant.
When the market threatens a turn from bull to bear, investors of all kinds become cautious: whether they’re buying blue chip stocks or simply sending money to an IRA or pension.
Many will stop making investments or sell their stock so that they have cash on hand to redeploy to more pressing issues.
But the best returns tend to come for people who zoom out and take a long term view of the market.
This is such a good analogy for so many things in life but especially for marketing. It’s one of the reasons why we talk about making investments versus ‘doing marketing’.
To illustrate, here’s a graph showing the value we managed to generate from SEO for one of our clients:
Over time, the delta between investment in organic search and the value realized by that investment increases vastly.
Most SaaS companies never get to that point because they are making the wrong investment choices.
Instead of pulling marketing’s funding (and letting their team go) companies should really ask themselves:
Do you believe that marketing a company is necessary for long term success?
In the short term, your marketing may not perform in the way that you would ideally want it to. It usually takes a little while for the revenue to come through as ROI. The landing page you publish today may not have revenue attributed to it for 90 days. The ad spend may take a little while to become efficient.
But making marketing investments in the right activities will compound over time and even after just a few months should become a significant driver of bottom line metrics like revenue.
How to make better investments in marketing now and in a downturn
In the previous section of this article, we talked about how companies should treat marketing as a long term investment and continue to make strategic investments during tough times.
Now let’s discuss how SaaS companies can make adverse economic situations work in their favor by making better marketing decisions by doing the following four things:
- Using dollar cost averaging in good times
- Building pipeline
- Investing when others are withdrawing
- Hiring great marketing talent from competitors
Use dollar cost averaging in normal times
The first element of our strategy is to encourage SaaS companies to use a dollar-cost averaging mindset no matter what the economy is doing.
In case you are unfamiliar, dollar-cost averaging is a term used to describe “an investment strategy in which an investor divides up the total amount to be invested across periodic purchases of a target asset in an effort to reduce the impact of volatility on the overall purchase. The purchases occur regardless of the asset’s price and at regular intervals.” (Thanks, Investopedia!)
The goal of this is to avoid trying to spending any time on pre-empting what the market will do (good or bad) and instead believing: over time, my investment will likely yield positive returns.
In practice, this looks like making a steady baseline investment in marketing activity every month whether the market conditions are positive or negative. Here’s an example from another client of ours showing the benefits of doing so:
The green line shows the ROI becoming decoupled from the investment. If this client continues to make a dollar-costed investment, they will continue to see the delta between spend and ROI increase to the extent that their returns become more like a hockey stick – an overnight success, years in the making.
In your SaaS, when your marketing performance is down one month, you should absolutely ask why it’s down, but you should also zoom out and remind yourself that over time, your investment will almost certainly mature and compound.
A popular narrative in B2B SaaS marketing circles at the moment is that the MQL is a pointless metric.
We’ve written extensively about why this narrative is totally false and the MQL is actually an incredibly valuable part of a SaaS marketing strategy.
Marketing teams in B2B SaaS often drive MQLs as a key result. And while the qualification criteria for ‘marketing qualified’ may be a weak point for lots of teams, when qualified effectively, these leads can turn into revenue.
The issue is exacerbated when a SaaS product is a business critical tool with long lock-out periods for buyers. At any given moment, only a tiny proportion of the total addressable market is ready to buy.
When marketing is cut and stops generating and nurturing MQLs, one of the downstream effects (although not usually very far downstream) is that pipeline surety suffers and dealflow dries up.
Considering how many B2B SaaS companies have a sales led go-to-market strategy, that is a very worrying effect of reductions in marketing spend.
SaaS companies should focus on making their pipelines more robust by building a diversified mix of content and marketing automation that helps build buyer awareness.
The following content types are what we’ve found to work best at each level
- Problem Unaware Content: Books, Quizzes, Symptom-Focused Articles, Press Articles, Category Consumption (content that goes through the why, what, how, and what to do next regarding your product category)
- Problem Aware Content: Checklists, Webinars, Guides, Templates
- Solution Aware Content: Calculators, Buying Guides, Industry Reports, Product Choice Quizzes, Scorecards
- Product Aware Content: Case Studies, Comparison Pages, Use Case Pages, ROI Calculators
This is just one example of an activity that will build the pipeline surety over the long term. But as with the previous point about dollar-cost averaging, getting started as soon as possible and maintaining the strategy is key to long term success.
Invest heavily when others are withdrawing
We’ve established that lots of companies are quick to withdraw marketing budgets when the economy looks shaky and that although they do this to try to survive longer, the work their marketing team has put in will decline in value quickly:
- They’ll see their search rankings decay
- Their ad campaign bidding strategy will become uncompetitive
- They’ll stop getting attention in people’s inboxes, on social media and anywhere else their buyers gather
There’s always a lot of opportunity for savvy SaaS companies to increase their marketing spend to capture land during tough times.
In order to make the most of this opportunity, ensure that you are regularly reviewing the search performance and campaign insights for key terms you want to rank or win.
A good way to do this would be to run an audit of your own performance and look for gaps.
For search, you can use a tool like Ahrefs’ Alerts to set up alerts on lost backlinks, keyword changes for your competitors.
Even just reviewing their performance in the SERP periodically will give some insights into how you can capitalize on their poor performance.
For example, if I had a headless checkout tool for ecommerce, I’d be looking at how bolt.com was doing on lost keyword rankings and investing hard in beating them:
The actual tactics will vary from company to company, disaster to disaster.
The important point here is that when competitors are withdrawing investment, you should be doubling down because it’s an amazing opportunity to grab marketing real estate that will drastically grow in value when the market picks up again.
Hire your competitor’s marketers
Hiring good marketing talent has been ridiculously hard for most SaaS companies in the past year and a half.
With rising valuations came more capital which made it a lot easier to start over paying for marketing hires.
But ultimately, many SaaS companies are going to find that the promises they made their marketers can’t be sustained and the inflated salaries will cause your competitors to get rid of team members.
Their poor decisions can benefit you though. The marketers they’re letting go have deep knowledge of your sector and your customers’ needs. They also have great insights into what’s working for your competitors.
During an economic downturn, you should consider hiring marketers who your competitors have fired.
By doing this, you’re not only building your marketing organization and providing a fair salary for talented people, but you’re also building a competitive moat for your company long term.
A recession is likely to happen at some point in the near future. Many SaaS companies will think to cut marketing spend (and team) on reflex.
But smart SaaS companies will realize that marketing is not a cost center and make strategic investments including doubling down at the right moment to ensure that their growth is sustained and their long term growth rate is boosted.
SaaS companies can make better marketing decisions by doing the following four things:
- Using dollar cost averaging in good times
- Building pipeline
- Investing when others are withdrawing
- Hiring great marketing talent from competitors
Good, sustainable growth is the result of long term thinking and smart marketing investments. Not knee jerk reactions to economic hard times.
If you would like help developing a predictable, sustainable marketing system in your B2B SaaS company, schedule a Free SaaS Scale Session to find out how we can help you do that.
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