Published: 12th September 2022
Here’s a curious story. In the early 1980s, a severe recession struck the world. Of course, recessions are a fairly regular occurrence. But this one was the most severe since WW2. Few businesses were spared the hardship. When the dust settled, many were left wondering, with many questions.
You and I are most interested in this one - how exactly did the survivors, well.. survive?
Business academics got to work. A massive study was carried out - 600 companies from 16 different industries - were examined. All to unlock the very painfully learnt lessons we need to remember today.
Their findings were clear: companies who continued to advertise during the two-year recession saw 256% higher sales than those that throttled back. Choosing not to advertise during the economic slump, saw virtually 0% market share increase and their sales barely budged once the economy regained traction.
Now, the conclusion is not to ignorantly pump money into Facebook ads as if nothing is the matter. The economic conditions really are changing and it’s hard not to sense it.
The truth is - your business is likely to slow down, become less profitable. Downturns are rarely a chance to grow. They are a time to react and adapt.
So the conclusion is - you need to survive and do the best you can until it’s time to grow again.
You survive by being exceptionally diligent about marketing efficiency and being aware of your direction for the next few years.
As a starting point, here are our 9 tips for balancing your ad spending during an economic downturn.
Hang on, didn’t you say I should be increasing my spending!? Possibly, but first a good strategy is to scale down ad spend across all channels and observe the changes. This can help explicitly highlight the role paid advertising plays on your business’s revenue. A good measure here is to track your marketing efficiency rate (total website revenue / total ad spend) pre and post the test. If you see a significant spike in your marketing efficiency rate, it’s likely you were actually overspending and should recalibrate at a lower spend level.
Review your cost base broadly and look to cut or scale back spending on tools, channels or services not directly driving revenue. This includes reviewing your agency relationships. If your agency partners are not scaling their fees in line with your spending, and are not able to manage your accounts profitably, you should be renegotiating your fees or looking to move.
In an economic downturn, reliable, realtime business data is more important than ever. Properly configured analytics allows you to nimbly adjust your spending towards the activities driving the greatest ROI. Most businesses don’t leverage their digital data effectively, and are blinding spending advertising dollars without a strong understanding of the direct impact. If this is you, prioritise getting a complete picture of your digital data ASAP.
As a business owner it’s easy to get caught up in your own bubble, and just focus on your micro environment. Whilst you can get away with this when the economy is firing, it’s important in a down market to regularly review the macro economic conditions. Read about the state of the economy, research trends in your industry, track consumer sentiment, follow interest rate announcements. Businesses depend on consumers’ having disposable income, feeling confident about their future, and trusting in the economy. Having your finger on the pulse of the broader economy is key in a downturn to ensure you are making informed decisions about your spending and strategy.
Whilst it can be tempting to stop all advertising in the short term, especially when there isn’t a significant correlation between ad spend and revenue, doing so can have negative long term implications. McGraw Hill studied 600 companies from 16 different industries during the 1980s recession between 1980 and 1985. Companies who continued to advertise during the economic downturn saw 256% higher sales than their counterparts post-recession. Those who chose not to advertise, saw no increase in market share and an increase in sales of only 18% on recovery.
During a downturn, many companies will pull back or stop advertising. Lower competition usually results in lower impression costs, which allows you to gain greater exposure and market share at a much lower price. As mentioned in the previous tip, not only can you benefit from this in the short term, but spending whilst the others aren’t can set you up for significant growth post-downturn.
Flexibility is the name of the game in a downturn. You should be prepared to quickly shift your plans and spend to keep up with market trends. But you also don’t want to jump at shadows, and be overly reactive to the day-to-day ups and downs. Given attribution delays post Apple’s iOS14 rollout, we recommend reviewing your performance and media plan at least once a fortnight reassessing both your channel split and campaign budgets.
A period of economic slowdown is the perfect time to put your customers’ needs under the microscope. But also understand that consumers’ psychology changes during a recession. As a starting point, focus on what makes your product(s) valuable. Actually talk to your customers to gain a deep understanding of their wants and needs and how your product fits in. Then use these insights to explicitly point out the value your brand provides in your messaging.
Advertising channels are important in driving a return, but you cannot reliably bank on their performance, nor are you able to control the actions of Google and Meta. Think of these channels as pathways for directing customers towards the assets you do own and control. Your website and email / mobile list. Prioritising building and improving your owned assets will allow you to get better value from your ad spend, whilst deleveraging your dependence on paid channels. This will hold you in good stead when the economy picks up.
We can help take a lot of this off your plate. Our business launched 6 months pre-covid and that taught us the one thing you can count on is that you can't count on anything. Our approach has been honed through periods of significant uncertainty, which has resulted in a model that is perfectly suited to the current business environment. Why you might want to consider us.
We don't do lock in contracts and offer a flexible fee structure that adjusts to your media spend and business revenue.
No account managers or people without a clue. You work directly with our founders who have built and scaled hundreds of businesses. What’s more, we’re economics and data geeks allowing you to tap into broad economic and industry insights from our team.
We own a digital analytics business (DataCat) and include our full analytics set up and 24/7 reporting for free as when you work with us. Our goal is to turn your data into information, and that information into understandable, actionable insights. We don't just run ads, we analysis all aspects of your business to find opportunities for improvement.