If marketing is on the hitlist during your next budget review, then it’s worth spending ten minutes with your P&L first to understand whether marketing is actually the constraint, or whether it’s carrying the blame for something else.
Why it’s worth checking your P&L before you cut marketing
Cutting marketing is not as reversible as it feels at that moment. Research from Boston Consulting Group looked at 150 major US brands across fifteen industries and found that businesses regaining market share lost during a spending cut, had to invest an extra 85cents on the dollar they’d saved by cutting. The reality is, the cost of winning attention back is consistently higher than the cost of holding onto it.
In the same research, they found that companies who reduced brand spending saw shareholder returns run about six percent lower over the following years than those that held or increased spend. And at the same time, lost close to a full percent of market share to competitors who didn’t pull back.
None of this means that marketing shouldn’t be cut - but what it means is the decision carries a cost that doesn’t show up until later. This is why it’s worth being sure the problem actually sits with marketing before that cost gets paid.
Start with gross margin, not revenue
Revenue going up always feels like good news, and often, it is - but if gross margin is shrinking at the same time then it’s possible the business could be growing its way into a worse position. This feels like an oxymoron, no? The reality is if your cost base doesn’t keep up with your growth, you can enter a precarious situation. So look at your margin as a trend over the last three quarters.
Check whether overheads are growing faster than revenue
Fixed costs have a pesky way of creeping up before you realise what’s happening. It’s a new tool here, extra storage there, and while nobody’s w watching, the total cost against what the business actually brings in has increased substantially.
If overheads are growing faster than revenue, then marketing could be doing its job perfectly and profit would still be vanishing.
Look at where revenue is coming from
If your growth is entirely dependent on new customers then it’s worth paying closer attention. A strong business has both the acquisition and retention engines bringing business in. If you become entirely reliant on acquisition then you’re paying to acquire customers who never come back - and that’s an expensive game. It often means the business never built retention or they did, but it’s dropped and nobody has noticed. It’s a cost problem just as much as marketing one, since existing customers are easier to win back than new customers are to acquire.
Separate pricing problems from marketing problems
When people buy into a new business for the first time, they typically spend less. Sometimes that means your best selling product is actually the one with the worst margin. Here, obsess over the second order and increasing basket spend, and LTV.
In terms of your P&L, pay particular attention to whether the pricing overall reflects what is being delivered. If you have reduced the product spec but kept the price the same, have customers cottoned on and aren’t buying as a result? Or on the other hand, you’ve increased the product spec and value, but you now have a thinner margin because the price hasn’t caught up.
In short
None of this should replace a proper financial review but it’s usually enough to tell you whether cutting marketing solves the problem. Or whether it just removes the one lever that was working while the real issue stays exactly where it was.
This is the more practical checklist that sits under our longer piece on whether marketing is really the problem - and worth checking out if you haven’t already.