Cutting The Marketing Budget

In my pricing / forecasting projects ($4,900 ... kevinh@minethatdata.com) I'm typically asked a common question.

• When we're facing tariffs or economic headwinds, it makes good sense to conserve money and not spend as much money on marketing activities, correct?

Well, this is the kind of question that made sense back in 1995, when we didn't have good tools to make decisions. In 2025, we have tools. The answer is "maybe". Your customer base and your p&l will decide the answer for you.

Let's say we simply pass the increase in cost of goods along to the customer. That scenario didn't look spectacular.

Demand/Sales don't look bad, but profit looks bad and the customer file contracts by about 2%. If your CFO is smart, she'll have you evaluate every marketing dollar to identify waste. If your CFO is not smart, he'll tell you to cut the digital budget by 30% ... just some dumb arbitrary number.

Well, we can simulate the 30% drop in the digital marketing budget. What happens?

All sorts of moving parts here.

• You spend $1.5 million less on digital marketing.
• You generate $1.7 less in demand/sales.
• Profit improves, and is now just 10% less than the year prior.

You likely noticed the problem, right?

• All of your good customer segments contract by about 4%.
• New buyers contract by 6% ... those digital dollars align with new customers, don't they?

Remember, these are simulated/modeled results ... we don't know that this is what will happen. We do have prior results that the simulation is rooted in. This is a better prediction than any guess anybody else is likely to come up with ... it's based on your actual customers and their behavior.

What is the right answer?

There is no right answer. There are hundreds of possibilities, all of them are bad, the more you eat the cost of goods impact the worse profit looks ... the more you try to mitigate short term profit pain you pay for it in the long-term.

But at least you have choices, right? That's what the pricing / forecasting simulation does for you. And I only charge $4,900 for it. Seems like a reasonable investment if you are going to be put in a spot where you are forced to pass along cost of goods increases to the customer.

P.S.: Next week we'll talk a bit about what happens to demand when you cannot physically sell products you planned to sell.