An expense review is one of the CFO services I make available to my clients. An expense review is an analysis during which I negotiate with vendors for lower pricing, or look for different vendors altogether for lower pricing. Eventually you will need sales growth, because I’ve never seen a P&L with no expenses, no matter how good their CFO is at cutting them.
Businesses are still looking to cut expenses with the way the economy is continuing to be difficult, which is a good thing. Cutting expenses should really be an ongoing practice no matter what economic conditions are, but during this current economic difficulty I see more and more businesses cutting into their advertising and marketing budgets. Just like other expenses, a review and analysis of advertising and marketing expenses should be a constant no matter what economic conditions are like. During this analysis if certain advertising is determined to be ineffective then that advertising should absolutely be cut, but what I’m seeing is business owners who cut effective advertising, and put off effective looking new promotions. Advertising and Marketing is the last place you should make cuts, the only circumstances under which you should cut advertising and marketing is if what you’re doing there is completely ineffective. I am well aware of the risks involved in advertising and marketing, but being a CFO I also know that business owners cannot retreat forever, unless they’re willing to retreat right into bankruptcy court.
I understand that even your most effective form advertising will not be as effective in this economy as it would be in peak economic conditions, but it’s still the best you’ve got and should not be cut. Making the decision to keep what has proven to be effective advertising and take on promising looking new marketing and advertising opportunities is where the risk of entrepreneurship comes to the forefront. This is the decision that separates the good business people from the not so good business people (and from your competitors who continue to retreat while you stand your ground and quire new ground).
There is a good story, a cautionary tale about the consequences of cutting advertising and passing up new advertising.
A Man lived by the side of the road and sold hotdogs.
He had no radio, because this man was hard of hearing. He had no newspaper, because this man also had trouble with his eyes.
Nonetheless, he sold good hotdogs.
He had a sign on the highway advertising how good they were. He cried out from the side of the road, “Buy a hot dog, mister!”
And people bought his hotdogs.
He bought a bigger stove, and ordered meat and buns in bulk. When his son came home from college, he wanted to enlist his son’s help.
To which his son said, “Dad, haven’t you gotten someone to tell you what’s been on the radio? There’s a big Depression on. The international situation is bad, but the domestic situation is worse!”
Hearing this, the man thought, “Well, my son’s been at college. My son has listened to the radio and read the newspaper. He probably knows better than I do what’s going on.”
On the behest of his son, the man cut down on his bun and meat order once more, took down his sign on the highway, and didn’t bother to stand on the side of the road vocally advertising his hotdogs anymore.
His sales after all his cuts plummeted practically overnight.
“Well son, you are right”, the man said to his son, “We are certainly in a Great Depression.”
As you can see, cutting advertising that works is NEVER going to help you; it will only make a bad situation worse. If a business wants to make cuts during challenging economic times, it should NEVER be from advertising and marketing unless the advertising is actually ineffective.