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Managing Your Business During a Crisis – Part Three

Marketing and sales are the engine room that provides the drive for the business. In tough times it is quite vital that you do not lose sight of the importance of customers and sales.

How do we navigate our way through this economic turmoil? How do we ensure that our businesses survive in order to provide us and our employees the ability to enjoy a full and safe life outside the workplace? How do we ensure that our businesses will in fact prosper, or at least be positioned to prosper, in the future? The bottom line is that we can’t simply rely on the things we’ve done in the past or on government assistance alone to get us thru this Covid-19 crisis. We should instead use this time to evaluate every aspect of our business and chart a course for the eventual recovery from this crisis.


We decided to dedicate a series of blogs to offer some clear and concise ways for a privately held business how to re-examine itself, to identify the key elements of its success, to develop strategies for ensuring its survival during economic turmoil, and ultimately to build a plan for thriving in the present and the future. In part three of this series we will focus in the need to examine your  processes and cost of Marketing and Sales initiatives.


I. Review marketing expenditure closely but avoid the temptation to just cut this back.

A business spends money on marketing in a number of ways and much of it appears in your profit and loss statement in areas other than advertising. It is important to get a handle on what you are spending on marketing so review all areas and aggregate these. Take a close look at printing and stationery, IT costs (for your web site), entertainment and any other line item where a marketing cost may be allocated.


Once you have the full cost, calculate the percentage of sales spent on marketing over the last two or three years so that you have a benchmark to monitor against. The measure for this is ROMI (Return on Marketing Investment) and it is somewhat woolly because, as we know, much of your revenue comes from non-advertising activity (such as customer loyalty, quality service, etc). A better measure is New Business Return on Marketing Investment.


Getting a return on Marketing Investment (irrespective of how you measure it) is a challenge and most businesses use a shot gun approach that hits some of the intended targets, but also
hits others who are not really the ideal prospects. The cost of a hit is the same irrespective of how ‘hot’ (or not) the prospect is. In this climate some market segments will have reduced
propensity to buy your products, so carefully review to ensure that your marketing is still likely to hit the segments you want.


Remember your Valuable Formula (Part One) may have changed and, if that is the case, the “WHO” will buy your products may now be different. If the WHO has changed and you continue to target the same group it will be a waste of marketing resources.


Return on Marketing Investment = revenues/cost of all marketing. This gives a crude measure of the return on each dollar invested in marketing.

New Business Return on Marketing Investment = revenue from new customers/advertising and marketing costs spent on customer acquisition activities. The value of this measure is that if you cannot see the new business coming from current advertising and marketing costs then as a short term tactic you may suspend this spend.


II. There are a number of activities that have little or no cost, but can add significantly to your marketing efforts.

  • Start a referral program (and perhaps give anyone who sends you a customer a small gift).
  • Develop a loyalty program (give something special to your longstanding and best customers).
  • Try getting some PR in your local media for activities you are involved in with your business or community during the crisis.


III. Consider using online marketing as a substitute for traditional marketing.


There is a major global trend to redirect marketing dollars into online channels. Online media spending is growing by around 30% per annum and in many countries it is bigger than expenditure on radio advertising.


Online channels provide significant targeted marketing opportunities. It is cheaper and very effective. Consider web sites, search engine optimization, electronic newsletters, electronic direct mail (edM), blogs and so on. Online marketing is quite measurable so you can modify your campaign according to what you see is working and what is not.  There may be some capital cost if your site needs a freshen-up, but you can do a lot with a little in this area.


Covid-19 highlighted the need to reach customers remotely as face to face interactions can be limited. As a result you should review the ways you can reach your target audience and existing customers in new ways.

IV. Avoid the temptation to cut prices to get the sale. 

Cutting prices cuts profits and you need profits to generate cash. The only circumstance when discounting is justified is if you have a serious cash crisis and you need to liquidate inventory simply to get cash flow in. Look at offering payment terms (within reason), bundling other products, extending warranties and other price maintenance measures.


It is easy to drop prices and hard to get them back up again. Traditional economics says a drop in prices should stimulate the volume of sales (how much depends on the elasticity of demand). However, you need to be careful that the net effect of a price reduction is not a drop in revenue which will occur if the price reduction does not stimulate a significant increase in volume. A lower sell price will also reduce gross margin, so volumes need to be significantly stimulated to generate profitable business.

In our example (above), by cutting the selling price from $7 to $6 the volume sold has increased from 150 units to 160. The revenue has fallen from $1050 (ie 7 x 150) to $960 (ie 6 x 160). If each unit costs $4 to buy, then this business would have also lost gross profit (Gross Profit at original price was 150 units x $3 per unit = $450 Gross Profit and at the reduced price was 160 units at $2 per unit = $320 Gross Profit). Elasticity of demand and gross profit margins need to be understood BEFORE price discount strategies are undertaken.