With fewer prospects buying HR technology right now, should you slash your marketing budget?

For more than a year, there have been less prospects in the market to buy HR tech solutions. It’s estimated that only 1% of prospects are actively buying these days compared to the more typical 5%. And this trend isn’t showing signs of a rebound just yet. 

Maybe you’re asking yourself whether to slash your marketing budget. It’s a question we’ve been asked recently, and we think it’s something on a lot of leaders’ and marketers’ minds. Check out this this episode to hear our discussion on the trends, navigating this tougher selling environment and how to best support the long-term growth goals of your organization. 

00:21 With less prospects buying, should your marketing investment change? 
01:44 How the decrease of prospects is impacting the sales process 02:57 Highlights from the 2024 B2B Sales Benchmark Report on sales challenges and impact on quotas 
04:46 Why the sales process is longer and win rates and deal values are down 
09:18 Cutting back on marketing spend affects important long-term marketing programs 
13:55 The role of marketing in building brand awareness, credibility and trust for future prospects 
17:31 How to inform and influence internal decision makers about the importance of a long-term marketing mindset 
18:47 Key takeaways and conclusion

The Demand Gen Fix is hosted by Deanna Shimota, CEO of GrowthMode Marketing. Listen to our team of marketing experts and featured guests drop knowledge on how HR tech companies can maximize the success of their marketing for today’s B2B prospects. Learn more at www.growthmodemarketing.com.

Transcript

(00:00:01) - Hey, everybody, it's Jenni from GrowthMode Marketing. You're listening to Demand Gen Fix podcast, where our team of GrowthModers and our guests discuss the ins and outs of demand generation, and why we believe it's the key to long term sustainable growth, especially in the HR tech industry.

(00:00:21) - Hello Deanna and Greg back for another episode of the The Demand Gen Fix. And today we're going to talk about a hard truth. And that is the fact that there have been less prospects out there buying HR technology solutions in the past year or so, and we haven't necessarily seen that trend turn around yet. Maybe you are asking yourself, should we cut back on investing in marketing if the market is a tough selling environment? In fact, this is a question that I got recently from a prospect, and I thought it would make a great podcast topic because I don't think he is alone in this thinking. And quite honestly, we've seen quite a few companies in this space significantly trim marketing budgets, if not cut them all together as they try to navigate a tougher selling environment.

(00:01:10) - So I would say, first, let's take a look at the current state of the market. I will say, if you feel like you are the only company out there that hasn't been hitting your revenue targets, or your growth targets for the last 12 to 18 months, and you feel like you're alone and everyone else is excelling, that is not the case. We have talked to many companies out there that are experiencing this. It's not just an observation. We can share some trends with you, but yeah, let's talk about what normally we see in the market and what we see now.

(00:01:44) - I think normally you would say in a normal climate, it would be estimated that only 5% of the companies in your total addressable market are actually in buying mode at any given time. And now, where we are now, right, in the tougher economic time, that number can be as low as 1%. So, finding a prospect that's actually ready to buy is like finding a needle in the haystack. They're just less buyers, and obviously the budgets are tighter, so it's just taking everybody a lot longer to get around to making a decision and signing that scope, or that proposal.

(00:02:19) - Absolutely, so we're going to share some statistics that we found from the B2B Sales Benchmark report 2024 that just came out. It was produced by Ebsta and Pavilion. They actually researched 4.2 million opportunities from 530 tech companies that sold a collective 54 billion in revenue in 2023, and they found some really interesting information that really supports the fact that it's not in your head. It is a lot harder to go out and sell right now than it was in previous years.

(00:02:57) - Yeah, it was disappointing to read this report in a way. It, like, puts hard numbers around the pain that you feel. It doesn't make you actually feel much better. You know, they did a lot of digging on the sales rep and how everybody keeps missing their quotas. On how hard sales teams had to work to to win a deal. They said that 73% of reps missed their quota in 2023, so that's crazy, right? And now in ‘24, on average, 69% of reps are falling short on their quota, so that's 19% smaller than last year.

(00:03:32) - Yeah, and just to clarify on that, like 69% is certainly better than 73%, but what the report said is that the quotas are actually 19% smaller this year than they were last year. So had the quotas remained consistent year over year, that means that actually 79% of reps would have missed their quota this quarter. And granted, the day we're recording this, there's a couple more weeks left in the quarter where this far through the quarter, there's not necessarily a lot of movement that will happen for some companies. And in reality, just 15% of sales teams had more than 50% of their reps achieve at least 80% of a quota. So, tough time to be a sales rep, right? Also a tough time to be a marketer because guess what? When the pressure is on the sales team, the pressure is on the marketing team as well, which I think is one of the reasons why there are companies out there that are looking at their marketing spend and seeing revenue down and saying, maybe we need to spend less on marketing, maybe we need to cut out some things because we have to find ways to keep the company healthy and continue to manage forward and keep our staff on board.

(00:04:46) - Yeah, and along with that, for the salespeople, it's also taking them a lot longer to close a deal, right, because the prospects are just taking a lot longer to make a decision, and really just pumping the brakes and slowing down the process. So in 2023, the sales process increased timewise by 16%, so it's just slowing down, slowing down.

(00:05:08) - It is slowing down, unfortunately, and on top of that year over year, there might have been a 16% increase in the amount of time that the average deal takes to get to a conclusion, but if you go back and look at 2021, where for a lot of the HR tech industry, it was a really good time. The win rates were down from 2021. Even more than that, and back to the sales cycle, it was 38% faster or quicker to close a deal in 2021 than it was in 2023. And then from a win rate perspective, a lot of companies in this report actually saw bigger pipelines in 2023, but their win rates fell.

(00:05:57) - So, more pipeline but less deals actually closing. They had 18% less of the pipeline closing compared to 2022. And those win rates were down 27% compared to 2021. So 1 in 4 deals that existed in 2021 that became a client, I had only like three to work with in 2023.

(00:06:22) - Right, and those deals that did close were also lower than what they had been traditionally, right? So, companies were still spending, but they were, the ones that did have money to spend, were coming to the table with a lot smaller budget, so the average deal value decreased by 21% over the year before. So, there were some sales, but it was still as few and far between, and then when they happened, it was just not the numbers that you would hope.

(00:06:47) - Yeah, and you know, and this is all such wonderful information, right? Like, we just keep piling on like the yep. You know this, slipped this slipped. Speaking of slipped, you know more deals slipped. Oh right. More deals slipped in 2023 in this research than in previous years because prospects were more cautious.

(00:07:11) - They were streamlining their tech tools, meaning they didn't want as many tools in their HR tech stack because they were looking at ways to trim down budget and probably also make it more efficient and easier to manage internally. And they were scrutinizing investments more, and 44% of sales deals got pushed back. Meaning if you thought something was going to close in Q1, it ended up getting pushed and maybe a decision wasn't made till end of Q3. And when deals slipped, when rates actually plummeted by 67%, particularly for those opportunities that were delayed over eight weeks, buyers were not moving, even if they did have budget the way they have in the past. And ultimately, like, indecision ruled the day because prospects, a lot of them were hesitant to pull the trigger, and often going dark. And of all the deals lost that were analyzed, 61% as reported by the reps were lost due to indecision, or no decision on there. So, I think probably when you look at this holistically, what was happening is the buyers that were out there, there were a lot less buyers that were out there, but the ones that were maybe they were in the middle of the process of evaluating and their budgets got frozen or cut, and they weren't able to make a decision, or they were told, okay, we can't purchase this now. You have to wait six months to evaluate this. Different things like that. So, they may have gone into it with good intentions of we're ready to pull the trigger on this, but it didn't always work out that way. 

(00:08:55) - Obviously, from a sales perspective, as HR tech companies, a lot of you were feeling this and probably still are feeling this as the economy hasn't really recovered yet. And that begs the question, okay, we know there's less buyers and there's less budget out there to purchase HR technology right now, but do less buyers mean less need for marketing?

(00:09:18) - Well, since we're a marketing agency…

(00:09:23) - Of course our answer is yes we… (inaudible words)

(00:09:26) - Of course the answer is no.

(00:09:28) - Right, the answer is no, and we'll talk about a few reasons why we would not recommend skimping on marketing in these times. Because at the end of the day, you do have to make a decision, but marketing is a long-term investment, and you want to make sure as you're determining, am I going to cut down my marketing budget, or trim it out altogether? Like, what are the repercussions of that? Not just now, but six months from now? Two years from now? Right, like there are things to consider as you're doing this.

(00:10:03) - Yeah, for sure because prospects that are in the market when they are ready to buy, they're not going to know who you are, right? They won't even know who you are if you haven't been out there marketing and staying in front of them. Like Deanna said, it's a long-term game, and the prospects now are doing like 80% of their research before they ever reach out to a salesperson. So, if you're not there when they're doing that research, which actually, if you have no budget, is a good time to do a lot of research, right, because you're not negotiating the deal, but if they're doing all that research, you have to be out there and you have to be in front of them, or else when they're ready to go, you're not going to be in their consideration set.

(00:10:42) - Yeah, and listen, there are still prospects out there buying. There are just fewer, but you still need to be in front of those that are out there buying. A lot of organizations, they might divert their funds and cut their marketing programs down, so they're not doing so much long-term type of programs. And they're more like, we need leads. We need them now. All hands on deck. Like, let's start to put our money specifically on those that are in market right now. I think there is an element where you need to always have an eye on who's in market right now, but you also need to know, like someone who's not in market today, may be next month, and you have to be in front of them too, from a marketing standpoint, because, as Greg said, if the prospects that are in market don't know you exist, they will not buy from you. And unless you're going out of business, you still need prospects coming into your pipeline that you can sell to.

(00:11:41) - Yeah, absolutely. And the good thing, if all the competition's starting to pull back their budget and you don't pull back as much, you'll be out there when there's less noise, so what you are investing will actually have more value if everybody else is pulling back.

(00:11:56) - Yeah, I think that is very true because that means in the very crowded HR tech space and any other market out there that may have a lot of competition, normally it's really hard to break through the clutter. It’s still really hard to break through the clutter, but when you have suddenly less voices and less marketing hitting those prospects out there, that means your marketing investment has a bigger opportunity to cut through the noise. And you can get on a prospect's radar now before the economy recovers, so your competitors will be coming from behind when they finally turn their marketing back up. And I think that is something to think about from a long-term strategy of, hey, we know they're making up to 80% of that purchase decision before they're willing to engage with a sales rep, which means you've got to have stuff out there, even if they're not ready to buy today.

(00:12:55) - And if the competitors come back in one year, they're coming from behind and they're going to have to ramp their marketing up, but you were there all along, and you've already built that credibility and trust with that prospect. So, they already know they want you on the shortlist and they're thinking about you

(00:13:15) - Yeah, it sounds silly, but it's almost like that old dating of childhood stable, right? The tortoise and the hare. The tortoise keeps plugging away, and the hare runs and spends all their money. And then they run out of money. And then the tortoise keeps plugging away. And who gets to the finish line first?

(00:13:31) - Those who aren't in market to buy right now likely will be in the future when the economy improves. So I think that's another thing you need to think about, is you still have to work on building that brand awareness, credibility and trust. Because when they do enter the buying pool down the road, you want to make sure that they know you, they like you, and they already have it in mind that they want to work with you.

(00:13:55) - Marketing should always be viewed as a long-term strategy, and I think when times are tight, a lot of organizations, one of the first places they look to cut spend for an organization is marketing. And having worked in marketing on the corporate side, I know this is true. All of my marketers out there at one time or another, if you've had a long career, have probably faced the prospect of a layoff. It's counterintuitive to cut your budget in marketing when revenue is down. The reason I say that is, how are you going to turn that situation around and convince buyers they want to work with you? If they're not even seeing you out in the market, and they're not building that credibility and trust with you.

(00:14:50) - Yeah. It's like all your prospects is your garden, right? When you let your prospects, and your credibility, and your trust wilt in the garden because you don't have any water right now, or you don't have enough water, but then once it's all wilted and you try to put water on it, it's too late. Then you're going to have to start from scratch again. So, it's better to try to keep it going, maybe a little less water, but don't turn the hose off.

(00:15:14) - Greg's always good for those analogies on how to explain these things, but the last thing that I would leave you guys with, if you're listening to this about why you should think through, if it's the right approach, you cut out marketing because you think there's no buyers out there. There have been numerous studies over the years that have shown that companies that invest more in marketing during an economic downturn actually do come out stronger when the tides change and outperform their competition. The decisions that you make with marketing now absolutely will impact your future growth. Hold back on marketing now, and the reality is, it will take longer to rebound when the purse strings loosen, as you'll have to make up lost ground. You definitely need to think through it. I don't think the studies are wrong because they're looking at after the fact, right? These organizations that pulled back spend versus ones that actually leaned into a bad economy and spent more because they saw the opportunity to market when less companies were out making noise and they came back really strong afterwards.

(00:16:27) - Not only did they make it through like the tough selling environment, but as soon as the economy turned around and companies were spending again, they excelled and outperformed everyone else. I think it's good food for thought to consider that. And does that mean you have to throw the money you don't have into marketing? That's not what I'm saying. I think you have to be smart about how you're spending, and making sure that every dollar you spend on marketing is supporting that long term goal, and it's focused, but you definitely need to think before you completely pull back on your marketing spend.

(00:17:01) - One of the thoughts that came to mind before when you were talking. A lot of times the people that control the budget, or not, the people that would understand that the buyer now is spending 80% of that time researching before they reach out, but as marketers, we know that. Most of us know that. Some still don't know that, but it's definitely the people who are making the budget decisions don't know that. So, it's like you need to help them to understand that just turning off the marketing isn't going to help your long term.

(00:17:31) - You need to educate internal stakeholders because a lot of times, like budget cuts, probably start with your CFO who says, okay, we've got to cut 20% out of this budget because we're going to miss our revenue targets, and we need to stay healthy as an organization. Try to be involved in those conversations and educate the team on, okay, we can't just cut off all marketing or certain programs because at the end of the day, this will have long term impact for us, but be a team player. Look at the budgets. There may be opportunities to trim some of the fat, or things that maybe were passion projects, or different things you were trying that aren't necessarily driving meaningful results, and just being able to lean into the things that are effective right now and just spend your money wisely.

(00:18:23) - It's typically a tough selling environment out there.

(00:18:26) - It is. But don't let short-term revenue challenges derail your marketing strategy before you consider skipping marketing because fewer buyers are out there. Just take a step back and really think about whether that is the best decision to support the long-term growth goals for your organization.

(00:18:42) - Good luck.

(00:18:47) - Thanks for joining us on The Demand Gen Fix, a podcast for HR tech workers brought to you by GrowthMode Marketing. I sure hope you enjoyed it. Don't forget to subscribe for more perspectives on demand generation and B2B marketing strategies. Plus, give us a like, tell your friends. We'll see you next time.