In business, as in algebra, certain formulas apply. An old reliable in the world of commerce is that when revenue gets tight and forecasts become grim, the cost-cutting ax is unsheathed, sharpened, and poised to swing. The first cut usually lands on the neck of the marketing department, which has its budget cleaved in the course of an unpleasant afternoon.
But that may not be such a good strategy. A study recently conducted by Getzler & Co., a New York-based corporate turnaround firm, indicates that most organizations experiencing a cash flow pinch are better off reducing operating costs than trimming back on sales and marketing expenditures.
The study evaluated the costs incurred by 190 struggling tech companies during the second and third quarters of last year. Faced with tough times, 46 cut their marketing budgets and 25 slashed operations. The surprising result: Firms that scaled back their marketing budgets saw losses more than double during the period, while companies that reduced operating costs maintained a constant rate of loss.