Selling in a Downturn: Managing Buyer Budgets

Scott Albro
Co-Founder and CEO, Goldie
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The economy is slowing. Whether we’re technically in a recession or not, we’ve all seen the headlines on layoffs, declining stock indices, rising interest rates, and a variety of other negative economic news.

When you’re a sales rep, you have a front row seat for any economic downturn. A quick review of recent tech vendor earnings calls highlights what we already know: vendors are seeing reduced demand for tech products and services. Notice that the commentary is really about what executives are hearing from their sales teams:

“Towards the end of Q3 and as we entered Q4, we saw a greater level of financial scrutiny from buyers, which further elongated sales cycles. All deals, including straight renewals are requiring more effort to reach an outcome, which stretches our sales team and capacity.” - ZoomInfo

“You recall that last quarter we noted measured customer buying behavior really beginning in July. This led to elongated sales cycles, additional deal approval layers, and deal compression, particularly in enterprise. As Q3 progressed, we saw an even more challenging buying environment, driving intense customer scrutiny on every investment dollar to ensure the highest return possible.” - Salesforce

“Cloud adoption remains healthy, [but] customers have become more measured in how they purchase… New deals are being inspected with more scrutiny.” - Informatica

“We’re obviously, as we talked about, staying close to our customers and giving them some leeway on payment terms if they need it.” - ServiceNow

Reduced demand from buyers is obviously a major concern for salespeople. It affects their ability to close business and by extension their livelihoods. That’s the bad news. The good news is that most of the issues a seller encounters in an economic downturn can be distilled down to one risk - budget - and that risk can be mitigated with a handful of sales plays and best practices.

Same priorities, different budgets

In spite of all the bad economic news, your prospects’ work lives are remarkably unchanged. They do the same work they did before the downturn. They have the same pain points and priorities. They have the same goals, the same opportunities.

So if everything’s the same, then why is selling so much more challenging during a downturn? Well, there’s been one really important change and that’s budgets. Even though buyers still have the same pains, challenges, and priorities, they now have less money to spend on those things.

Budgets don’t appear out of nowhere. There’s an exercise that almost every business goes through where they examine how much cash they have available to fund operations. That cash typically comes from two sources: selling things that people pay for and raising capital. At a macro level, both cash flow and capital are scarcer in an economic downturn. It’s harder to sell and it’s harder to raise capital.

As capital becomes scarcer, budgets shrink. That makes selling into these accounts that much harder, obviously. 

How to manage budget risk as a salesperson

There are a number of best practices that salespeople can adopt to mitigate the risk of reduced budgets. Most of these are tactical adjustments you can make as you engage prospects, but some are strategic go-to-market decisions.

Tighten your ideal customer profile (ICP)

Many sales and marketing organizations make the mistake of expanding their ICP in a bad economy. They believe that, because aggregate demand is shrinking, they need to target more accounts, whether those accounts are in new verticals, segments, or geographies. It’s a classic mistake that usually increases customer acquisition costs (CAC) and decreases conversion rates. 

Instead, you should tighten your ICP to ensure that you’re targeting accounts where budget is less of a risk. There are many examples of this, but two notable ones where you should focus are:

Existing customers - They have already budgeted for your product, seen the ROI your product can deliver, and are fearful of the switching costs required to move to a new vendor.

Financially healthy accounts - Whether it’s a healthy balance sheet, strong growth, or free cash flow, you should target accounts that have the financial resources to maintain or increase budgets.

Sell to customers who have their hair on fire

It’s critical that your target accounts and personas are experiencing real, unbearable pain (in a figurative sense, their hair is on fire). For the buyer, budget isn’t really an issue when the pain is that bad. It’s also critical that what you sell will alleviate their pain. Many entrepreneurs refer to this as product-market fit, but you should think of it as selling painkillers, as opposed to vitamins.

For example, IT security is still a top priority for just about every organization in a downturn. According to a recent CIO Magazine survey, 45% of IT leaders name cybersecurity and risk management as their top investment priorities. That makes sense - IT security is a non-negotiable priority, regardless of budget. In fact, you can make the argument it becomes an even higher priority during an economic downturn. It’s a great example of something that prospects need to buy, even when times are tough.

Identify and engage the CFO

During a downturn, the CFO is in the room on just about every deal, whether you know it or not. So are other C-level executives who are scrutinizing every purchase for business impact and value. There’s often a gap between these “real” decision-makers and others involved in the buying process. Right now, there’s a big gap between what IT leaders and CFOs are saying about 2023 technology budgets. Gartner recently forecasted that IT spend would grow 5.1% this year. However, in a recent AICPA survey, financial leaders reported that budgets would only grow 2.7%.

While not purely a budget decision, economic decision-makers like CFOs will exercise veto authority over purchases that don’t meet certain financial criteria and they will typically do this at the end of the buying process. Make sure you engage these execs early in the sales process. Do not wait until the proposal has been delivered and you are in procurement. Also, make sure you use messaging and hard evidence (real numbers) that focuses on the value your product can deliver.

Cultivate champions

As a sales rep, you may be wondering how you gain access to the CFO and other senior executives. They’re busy in ordinary times and even busier during an economic downturn. That’s why it’s so important to cultivate “champions” in each account. A good champion will act as an internal advocate for you and get you access to executives like the CFO.

There are a few best practices that will help you leverage champions in your sales cycles. First, make sure you are cultivating champions that have credibility inside the target account. Second, repeatedly confirm that they are willing to be a strong advocate for you. Third, make sure your champions are using your value-oriented messaging and evidence when they engage others in the organization.

Make your ROI tangible

A lot of vendors and the salespeople that work for them struggle to make return on investment (ROI) tangible for customers. Some products and services don’t generate positive ROI, but for those that do, you can make ROI tangible by following a few simple tips. As a sales rep, you need to provide real evidence of the value your product will provide. Evidence can come in different forms such as references, benchmarks, and real case studies. That evidence should include quantifiable benefits and costs in actual dollar terms.

You should also make any ROI messaging and calculations specific to the prospect. Use discovery to understand a prospect’s business pains and objectives and then link your value proposition to those objectives. Also, let the buyer calculate their own ROI. Arm and influence them with data and tools, but let them build the business case on their own. When the ROI discussion reaches the economic buyer’s desk, you want them to know their team did the work on ROI, not a vendor salesperson.

Surviving the budget risk

Finally, selling in a recession can take a toll on you mentally. There is certainly bad news out there, but before you enter a psychological doom loop, remember that everyone experiences multiple economic downturns in their careers. In fact, Gartner just released its forecast for IT spending this year and in spite of all the doom and gloom, they are predicting $4.5 trillion in spend (that’s right, trillion dollars). There’s plenty of business out there. Just make sure you’re using proven sales tactics to manage the different risks, like budget, that you may encounter.

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