How Should Businesses Approach Spending During The Market Crash?
The current cost-of-living crisis has been difficult for both businesses and consumers to navigate, and following recent reports of the UK inflation rate rising to over 10%, many are anticipating that the country is soon to fall into a recession following a market crash.
During tough financial times, marketing is often one of the first costs to be reduced – especially when it comes to PPC, which can be an expensive, but extremely effective, type of marketing.
Understandably, those responsible for business expenditure will be worried and careful when it comes to deciding how to move forward with spending and how it might affect business performance. Despite these worries, it’s important for businesses to remain level-headed, and think carefully before making changes to their paid marketing strategies.
Rick Tobin, Founder and Managing Director at Circus PPC Agency, spoke about how businesses should approach the uncertainty they might be feeling as a result of news around the economy and the anticipated market crash:
“It’s understandable that businesses might be worried about the future when it comes to the expected recession, which might lead to big and uncomfortable decisions around where to put money in order to keep the business afloat. However, it’s important that these decisions are carefully considered in order to set up the business for the best results possible.
Even if there are some worries or apprehensions surrounding the future of your business as a result of the upcoming recession, making a slap-dash decision around your marketing spend could do more harm than good, and damage your account performance in the long term. The best thing to do is to consult an industry specialist, or if you’re already working with an agency, contact them to make sure you’re on the same page, and for any reassurances you need prior to making any important decisions.”
Luckily for you, we’ve consulted some of the top specialists in the industry to find out what exactly businesses should be doing to maintain or even drive performance during a potentially challenging period. We’ll give you a hint… it doesn’t include reducing spend!
Is there anything that businesses should be particularly worried about in anticipation of the market crash?
Paul Fernandez, The Growth Guys: There are a few things that can typically become a concern for businesses during a market crash. Firstly, cash reserves can be something that keeps a business owner up at night. Cash flow is the lifeblood of a business and this can become threatened when an upheaval in the market is on the horizon. Secondly, future sales are at risk. In a crash, consumers make conscious decisions about their spending depending on their immediate needs. Finally, the last thing is employee retention. During a time of financial uncertainty, a business’s staff will be experiencing uncertainty too, and the subject of salaries can be a difficult conversation. Business owners will be worried about how to keep hold of talent to help ride out the storm.
John Cave, Shoptimised: During any downturn, we’ll hear a lot of ‘we’re all in the same boat.’ However, that isn’t remotely true. All businesses are different and therefore face different challenges during periods like this. We might all be in the same storm, but everybody’s boat is different. Personally, I wouldn’t mind borrowing Amazon’s boat for the next 12 months. Worry is inevitable, but all we can do is focus on what we can control during these periods. Naturally, some businesses will choose to cut costs which may or may not include reducing the advertising budgets.
Amar Chana, Lunio: A tougher economic climate, such as a market crash, means it’s even more important to have a firm grasp of your numbers, especially in relation to your ad spend. Just because your campaigns are currently profitable doesn’t mean they’ll remain so indefinitely, so now’s the time to be proactive. What is your breakeven ROAS? What is your breakeven cost to acquire a new customer? Is your first sale more valuable because you can upsell more on the backend? Or is your first sale typically less valuable than the ones that follow? How much money are you losing each month to fake clicks and other invalid activity? These are the kinds of questions you need answers to. If you know your numbers inside out, you can translate them into concrete goals within the ad platforms you’re using, and your can course-correct quickly if your performance begins to dip.
Michelle Cartwright, Salesfire: Any major economic crisis is a cause for concern. There are many unknowns to prepare for in a turbulent market. Inflation, interest rates, strikes, and supply chain shortages are all under scrutiny and projected to be worse than the financial crisis of 2008. Right now is a key time to be showcasing your value as a business by nurturing your existing customer base with value driven content. Learning about your consumers’ buyer behaviour can give you key insights into how you can delight your customers throughout their purchasing journey. Through tough times, you need to be willing to engage your customers and compete against the rest of the market as consumers begin to prioritise their outgoings and are spending more on essential areas like gas, electricity and fuel.
John: The immediate focus needs to be put into reducing wasted advertising budgets. By this, I don’t mean stopping your top funnel marketing because the ROAS is lower. The impact of that action may lead to a reduction in the bottom of your funnel. Any approach to reducing waste needs to consider the entire funnel within your analysis. Cutting spend on products within Google Shopping can be achieved using performance rules within Shoptimised. This doesn’t mean the spend will be stopped, reduced, or, saved. Instead, you’re just cutting or restricting the products that costing too much money and not converting. This means your budget can be better utilised within converting products which improves performance.
We discussed the effect of the market crash and how it has led to increased CPCs in a recent blog. Read more here.
What approach to spending would you advise businesses take in preparation for the market crash?
Amar: The goals should be achieving more conversions with the same ad spend. One straightforward way to do this is by eliminating all fake clicks and invalid traffic from your campaigns on search and social. The money saved can then be reinvested to reach more customers with genuine conversion potential. It’s worth keeping in mind that savings are typically highest during peak sales season, when CPC shoots up dramatically for the majority of retailers. If you’re paying upwards of $5-10 per click, you’re at risk of losing a significant amount of budget to click fraud. At Lunio, we’ve helped clients boost their conversion rates by up to 120% by automatically blocking fake traffic from all acquisition channels hitting their site.
Paul: When it comes to spending, businesses, understandably, need to be frugal – but only in the necessary places. Spend money in the places that make you money. Spend money on the people within the organisation that make things possible. When it comes to marketing spend specifically, analysing your most successful marketing channels is a must. Look at the places where they are winning the most and double down. Focusing a large proportion of spend on customer retention during a crash is an approach that every business should be taking as this is likely the most profitable route.
What are the benefits of continuing to spend during this period?
John: If you can continue to spend and your advertising efforts are successful, you will come out of this period a stronger and bigger business. Again, this is easier said than done and does require capital which is not always a resource every business can rely on. Therefore, in addition to capital you also require smart, strategic planning. Remain in control of everything that you can and put your focus there. You can’t control the storm, just your boat.
Michelle: When looking at the clothing industry specifically in the first half of 2022, fewer visitors and fewer orders were registered compared to the same period in 2021. This indicates that less impulse purchases were made. However, in the same industry, TrendDesk recorded an increase of 1.29% in revenue and 3.9% increase in conversion rates, which points towards more intentional purchases being completed. These percentages show that continuing to spend on your acquisition marketing could be beneficial for your eCommerce business as although a potential recession is looming, people are being more savvy with their purchases. Informed purchase decisions are changing the shopping journey and overall buyer behaviour. Consumers are researching before shopping, and this is prime placement for you to push your brand.
Paul: Quite simply, businesses who are spending during this period will be doing something that most other business aren’t. It’s an opportunity to play the field and win when other teams aren’t even on the pitch!
Amar: According to the recent ROI Genome Intelligence Report by marketing intelligence provider Analytic Partners, more than half (60%) of businesses that increased media investment during the last recession saw ROI improvements. Conversely, brands that cut spending risked losing 15% of business to competitors that boosted their spending. This report undermines the logic of the typical knee-jerk reaction of cutting ad spend and marketing headcount at the first sign of a recession. In the long run, it undermines margins and efficiency. When competitors are panicking and dropping PPC budgets, it creates an opportunity to increase your own market share.
Why should businesses stay away from reducing spend despite the potential market crash?
Amar: Slashing ad spend may deliver a short-term benefit when it comes to your Q4 financial report. But doing so is short-sighted. You’ll inevitably pay the price later down the line when the reduced visibility and ad impression share catches up with you. That said, most businesses aren’t in a position to significantly increase their ad spend overnight, and it’s wise to remain cautious. We’d (Lunio) recommend keeping your budget the same or increasing it incrementally over weeks and months while doing everything you can to squeeze additional value out of it.
John: The maths is pretty simple. If you spend less on advertising, you will generate less in revenue. Having less revenue during more challenging times leads to even more challenging times. But, and this is a pretty big old but… you can only spend what you can afford! Don’t try to push yourself beyond your own comfort zone, it’s not the time to gamble and go all in on the first hand. However, it is a time to be sensible, plan, be calm, and stay in the game.
Paul: Reducing spend isn’t necessarily the best strategy as there could be opportunities to make larger gains. The gains will be reduced if the spend is reduced also. Instead, explore potential new avenues or channels, focusing on the areas that have proven successful in the past, or create a strategy where you can look at both.
John Cave, Co-Founder & Director of Shoptimised, discussed the areas that businesses should consider focusing on as we approach the market crash, and a likely difficult financial period for many companies:
Conversion Rate Optimisation
Increasing your conversion rate from 1.6% to 1.8%, or your average order value from £58 to £64, can have a huge impact and is often overlooked whilst hoping for a silver bullet from your marketing teams. There are always multiple areas of your website that you can improve which ultimately improve the performance of your marketing channels as a result.
Improved Reporting & Analytics
You’ll need to understand the top and bottom line of your performance and be able to ask some searching questions. Your reporting and analysis is going to improve your insight immensely. Not only should your reporting improve, but the frequency of your reporting should improve. The faster you know, the smarter you will be.
Make sure your reporting is not just a Hollywood blockbuster with a happy ending. It’s just as important to know what isn’t working as it is to know what is working. Some elements of your marketing will not work! They aren’t working now, and they won’t work then. Knowing what these are is the only way to improve those areas.
Strategic Discounting & Bundle Offers
Consumers love a good bargain, and you will be tempted to give into this to improve your cashflow. At some point, everyone is going to consider this, but consider your product performance first. Don’t blanket discount to include top seller or strong performing products and ranges. Only add discounts to stock that has sat on your shelves for too long or is going out of season.
You should also consider creating product bundles that collectively offer a discount. This helps to improve your Average Order Value whilst selling through more product.
If you’re still buying your Shopping traffic directly from Google, you’re losing 20% of your bid immediately. That 20% is going straight into Google’s bank account. Working with a CSS Partner ensures that 100% of your bid is used in the auction which initially helps to improve your position and CTR, which in the long term, lowers your CPC.
You might be thinking, ‘well of course a PPC agency will advise us to continue spending during a market crash.’
And yes, we’d be lying if we said that clients continuing to spend doesn’t benefit us – it’s what keeps us going as a business.
However, we’ve seen incredible growth across client accounts during economic periods of difficulty and assumed danger for many of our clients. Take the pandemic, for example. Something that, unfortunately for many businesses, lead to difficult decisions around the future of the company and in many cases, whether the business would continue to exist following the pandemic.
For advertisers working with limited budget, check out our guide to succeeding with PPC on a budget.
Despite the trials and tribulations faced by a lot of businesses, we saw many of our clients thrive during this period, and reach milestones within their accounts – like UK Rads, our client who saw a revenue increase of over 1,500% between March 2020 and March 2022. Read more about their success here.
Taking all of these factors into account, our core advice would be to spend time figuring out what would work best for you as a business, stay away from making any rash decisions, and talk to the experts.