Now more than ever, sales and marketing professionals are under pressure to justify dollars spent and provide evidence of results. In a recent survey of more than 800 marketing executives, more than a third reported that tracking marketing spending was a top priority. ¹ As spending constricts, the challenge is to find ways to channel limited resources into those investments that can demonstrate the best returns.

Instead of using a “broad-brush” approach to reduce sales and marketing costs (e.g., trimming 10-20 percent of spending across the board), companies should consider a strategic approach to sales and marketing cost optimization to help drive more targeted spending choices and improve competitive advantage. Such an approach requires organizations to:

• Fully define and align sales and marketing to key strategic objectives
• Leverage benchmarks and effective operational practices to identify areas of misaligned or excess spend
• Focus sales and marketing efforts on high-value product, segment, channel, and region combinations
• Understand the complexity and long-term impacts of each initiative

This alternative approach to cost reduction can help protect growth potential and improve a company’s Selling Expense Productivity Ratio (SEPR). The SEPR is the amount of revenue a company brings in for every dollar it spends on sales and marketing, and it is a good measure of overall spend efficiency. To impact SEPR, we recommend analyzing and acting upon four key levers:

1. Increase sales force productivity by improving organizational structure and policies
2. Reduce cost to serve across customer segments while preserving core business activities and relationships
3. Improve marketing effectiveness and efficiency through focused initiatives with an emphasis on return on investment
4. Increase channel effectiveness by focusing resources on high performance and high strategic value channel partners

Increase sales force productivity

Which customers do you prioritize? Which activities do your customers value the most? Often companies operate with less-than-optimal sales structures that do not take these questions into account. This is ineffective in any environment, but in today’s rapidly changing economic landscape, it is even more important that your sales organization be structured to adapt quickly to shifting customer and market demands.

To keep pace, an efficient sales organization has roles that are clearly defined, delineated, and aligned to customer needs. For example, task overlap was costing one Deloitte client nearly $2 million annually. They resolved this simply by redefining their sales force roles and responsibilities and refining the reporting structure alignment. When resources are limited, it is critical to examine all sales activity through the lens of value and eliminate, outsource, or at least reduce any non-value-added activities.

Action you can take now: Look at your customer portfolio and sales force alignment to identify areas for prioritization.

Reduce cost to serve

What is your core business? Which activities do your customers value the most? Which customers should you value the most and pursue? Taking a close look at the cost to serve customers may result in outsourcing those activities that are not vital to customer relationships or bolstering those that are most valued by customers. General cost to serve activities, such as invoicing or other routine processes, can often be centralized or outsourced with very little impact to the customer and at significant cost savings for the company. As an example, Deloitte helped a client generate over $8 million in potential savings related to low-value-added activities that could be eliminated or reassigned to more appropriate resources.

Action you can take now: Identify one back-office activity (e.g., invoicing) and determine if any change in type or frequency of communication can make a difference in your cost to serve (e.g., moving from paper to digital processing).

Improve marketing effectiveness and efficiency

Clients frequently ask "if I had one more dollar in my marketing budget, where should I spend it?" An equally challenging question would be "where would I cut a dollar from the marketing budget?" A 10-20 percent “broad-brush” cut to all marketing programs just doesn’t make sense when most organizations have sufficient information available to drive better decisions.

Non-traditional savings opportunities within the marketing function should be considered by companies seeking to improve their operational efficiency. For example, concepts that are typically applied in procurement organizations, such as contract compliance, can be useful in your marketing organization as well. Advertising agencies and promotional programs should be subjected to an appropriate level of scrutiny.

Another area that can be targeted for improvement is the consolidation of shared marketing services, such as market research and analytics. Often companies have independent marketing services by region or product line when a consolidated shared service approach could result in better performance at a lower cost.

Action you can take now: Auditing agency spend is typically a quick way to identify potential savings opportunities.

Increase channel effectiveness

Successful companies are usually very good at owning their customers, often requiring strong relationships with channel partners. How can you effectively judge which channel partners are best for your company’s future? Which distributors are bringing value to you and your customers? If you find it difficult to answer these questions easily, consider assessing and segmenting channel partners by their historical profitability. Renegotiating incentives, promotional allowances, or other contract terms among poor performers may help return these distributors to profitability. A combination of channel partner segmentation and incentive program optimization helped one Deloitte client save over $14 million.

Action you can take now: Revaluate underperforming channel partners or reassess distributor compensation levels.

Getting started

Making decisions about where to trim sales and marketing costs can be challenging, but it represents an opportunity to improve efficiency while protecting future growth goals. Here are a few basic steps to consider for getting started:

1. Establish a SEPR baseline
2. Assess against go-to-market strategy alignment
3. Apply against benchmarks and leading practices
4. Identify misalignment and opportunities
5. Start saving!

By focusing on appropriate cost reduction efforts, your company can learn a great deal in the process — and may emerge even stronger. And by measuring SEPR before and after cost reduction efforts, you can get a clearer sense of the effectiveness of your actions.

¹Marketing Outlook 2008 Survey of 800+ senior marketing executives by the CMO Council and Deloitte

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As used in this document, “Deloitte” means Deloitte Consulting LLP, a subsidiary of Deloitte LLP. Please see  www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries.

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