By Andy Karuza, marketing lead at NachoNacho and founder of multiple technology startups.
A recession is finally upon us, depending on your definition. Among the people mentioning the downturn are prominent economists, CEOs from different companies, big banks and former fed officials. Seventy-five percent of chief executives at Fortune 500 organizations have confirmed that growth will go negative before 2023 ends. Early in the year, the United States economy recorded a 1.4% shrink in the first quarter. A recession occurs when the GDP goes negative for two successive quarters.
During an economic recession, as many as 17% of companies don’t survive, either suffering bankruptcy, getting acquired or going private. However, the surviving businesses succeed (some 9% even performing better) usually because they embrace appropriate financial management strategies or take advantage of new market trends. Here are four critical areas that a business needs to focus on to survive during a recession.
Marketing channels should attract the right customers.
Tracking the organization’s marketing channels and monitoring key performance indicators (KPIs) are essential. The channels achieving desired results should continue, while others should be paused to help minimize costs. The goal is to focus on the best marketing channels to attract and retain the correct type of customers (we’ll talk about that shortly). Businesses should have a manageable marketing budget to help create a robust online presence. Marketing is often cut when the business needs it the most. At the same time, it might be the best possible time to acquire new customers when your competitors cut back into obscurity. Here are some tips on how to handle marketing during an economic recession:
• Send frequent emails and social media updates about your products and services. It helps to stay organized with a content marketing calendar.
• Harness the power of referral or affiliate marketing from existing customers or partners. In most cases, you won’t pay unless they bring you sales.
• Utilize retargeting ads instead of the cold top of funnel advertising (people who have never heard of you) to reach prospective customers who have already engaged with you. These website viewers are 43% more likely to convert. Why invest in getting new people when it’s more cost-effective to try to convert or keep the people you’ve already painstakingly brought to your website?
And in general, always make sure you have a clear ideal customer profile or “buyer persona.” It can help keep your marketing team focused on accurately reaching the right customers. You can build your own with this template here.
Cut unnecessary operating expenses.
It can be challenging to cut back some expenses due to the need to maintain the same level of service quality. Start with the highest and most unnecessary costs. Here are some expensive areas of spend management that you can cut back right away without adversely affecting business operations:
• Subscribe to smaller SaaS subscription packages since you might not need all the features you’re paying for at your current package level. There are some subscriptions you might find you don’t even need. When you add them up per user per month, they can become a much more significant cost center than you think.
• Embrace the remote work culture and cut office rental costs. Is your lease ending soon? Perhaps it’s time to let it go and embrace the remote work culture that has proven effective.
• Renegotiate contracts made with suppliers. They’ll often happily negotiate if you’ve done good business with them for a long time. During an impending recession, they’ll want to keep you much more than you think.
When cutting operating costs, it is crucial to ensure that the quality level of your product and service does not change.
Delegate and automate what you can.
In times of economic crisis, leaders should be ready to make tough decisions concerning the business. As a leader, you must assess the roles that can be handled by employees, combined or automated. Automating some functions will help cut costs. Some of the roles you can automate include:
• Automated data entry using AI-powered document understanding technology can result in a 70% reduction in processing costs.
• Low-code tools like Zapier and UiPath can help automate mundane or repeatable processes or tasks across thousands of apps.
• Chatbots have become an increasingly viable way to route inbound customer responses to the right resources or agents. However, as mentioned before, it’s critical not to sacrifice the quality of service, so don’t become overly reliant on them.
While many tasks can be automated with available and upcoming tools, cutting headcount should only be a last resort as it has many adverse effects. Do your best to cut costs without cutting headcount. Time and money can be saved through automation; keep your employees focused on the most high-value tasks that deliver the most significant impact for the business. Automate the mundane, repetitive tasks with the variety of easy-to-use tools available with a quick Google search.
Don’t overextend yourself on new projects or initiatives.
We all know growing a business requires investment in new assets, products and other initiatives. However, a company might bite off more than it can handle during a recession, fostering its downfall. Therefore, watching the costs and controlling the company’s growth is essential in facilitating the survival of a business during a recession. Take careful consideration when choosing new projects or initiatives; they’ll usually take quite a bit of investment, and it’s not worth starting in the first place unless you plan on going all the way with it.
It is always necessary to have a proper defense plan for the business in an economic crisis. Appropriate fiscal management is the best tool for handling an economic recession. Reviewing your financial statements is the simplest and most meaningful method for managing a business. These financial statements can expose the areas where you are wasting money. From there, you can start to take action today, keeping in mind some of the strategies highlighted above, so your business is ready when the recession hits.