Business Recession Tips — How to Thrive, Not Just Survive the Recession

Business Recession Tips

As a business coach I get to see a lot of businesses who are struggling in this recession, as well as what makes them spurt right out of it.

One thing I’ve learned is that small businesses all make the same mistakes during good times, but actually compound those mistakes during recessions. A belief that THIS IS THE WAY to manage a business is compounded when they feel that they have to watch and manage the business even more closely.

Biggest Mistake — Reducing Marketing to Keep Costs Down

Let’s review the “marketing formula.” It says that managing the results we get from marketing looks like this:

  • Number of people who get to see our marketing (and need us)
  • times
  • Conversion rate of marketing material (controlled by what we say and how we say it)
  • equals
  • Number of leads, sales appointments, signups, or whatever it is you want that prospect to do.

The number of leads we get is directly proportional to the number of sales we eventually get from those leads. So, when we cut back on marketing expenses, guess what? It’s logical! We get fewer customers.

However, the thoughts that cause us to cut back on marketing are nothing more than “marketing is too expensive.” The problem is that there is no thought about what the marketing generates.

In other words, we should be focused on “cost to acquire a customer” instead of “what our marketing costs.”

Using one form of marketing we may spend $1 per letter or brochure we sent out that delivers only one customer per 1,000 letters. That customer costs us $1,000 to acquire. If that customer is worth only a few hundred dollars that doesn’t work. We have to fix it. But if that customer is worth $10,000 of income, then this might work just fine.

But then again, we might spend $10 each for some other form of marketing that works so well that it only costs us $100 to acquire that same customer. That then becomes the best choice.

Or, another frequent mistake most small businesses make about “keeping costs of marketing down” is to choose the cheapest form of marketing they can, usually that’s some form of networking, spending hours upon hours upon hours drifting from networking event to networking event, all in the name of “it’s free.” And after months, and LOTS of hours they may get one client every month or so.

Even though the “upfront cost” is free, the real result is that it could be a VERYexpensive form of marketing. Start by estimating what you are worth per hour when doing what you are supposed to be doing with a client and then add up all of those hours to acquire that client, and the cost just might be the most expensive way to acquire a client that you have.

Now, let’s look at what typically happens during an economy. Back to the marketing formula.

(# people who see you)  X  ((conversion rate of marketing) = # leads

What happens during a recession?

Well, what we THINK happens and what actually happens may be different. Many small business owners believe that the Number of people who are looking may drop drastically. They believe that the number of AVAILABLE people searching drops. So, they believe that a large portion o their marketin is wasted going to people who are no longer looking, so they cut back on marketing, spending less than before.

In reality there are people still looking for what you do in almost any field. Sometimes they are harder to reach or harder to convince, so the conversion rate may drop, sometimes in half. So, let’s review that formula.

Let’s use an example,

Before the recession

  • (# people who see your marketing) x (Conversion rate) = # leads
  •                                       1000                       x            (10%)              = 100

But during the recession

  • (# people who see your marketing) x (Conversion rate) = # leads
  •                                       1000                       x            (5%)              = 50

So, your business just got cut in half. That might have put you below break even, money is now flowing out, not in. Or, even if you are still in positive cash flow, losing half your customers and half of your income seems like a pretty drastic event that requires some drastic action.

The thoughts that typically follow are, “I’ve got to cut costs somewhere to get this back in control.” WRONG.  Cutting a buck here and there won’t do what you want.

But, investing a buck in the right place just might. For every dollar we invest in marketing we should have a clear picture of how many more dollars that dollar generates. If a dollar invested in marketing generates 10 times that, then cutting that dollar from marketing would cut $10 out of our cash flow. Wrong thing to do. Or cutting a dollar from overhead that doesn’t generate cash flow is only cutting one dollar, and, frankly, that’s also the wrong thing to do. Are we going to cut rent payments, phone bill (you need the phone to communicate with the customer), insurance, etc.

However investing another dollar in marketing would increase our cash flow by $10 

Let’s take another look at the marketing formula. When this market tanked, it became harder to get new customers because it was harder to convince them. The conversion rate dropped from 10% to 5%. And most small business owners decided to then cut back on the other variable, by cutting back on how much marketing went out the door. So, we just increased the damage. Our conversion rate dropped in half, then we cut back on the numberof people who see the marketing, so a lower number of people seeing us times a lower conversion rate becomes a MUCH lower number of new customers.

What should we have done when our conversion rate dropped in 1/2? Double the number of people who see us by doubling our marketing efforts and the result would be that we still have the same number of customers that we had before the recession. See what I mean?

Yes, it does mean that our cost to acquire a customer goes up. As long as the cost to acquire a customer is reasonable, then our thoughts shouldn’t be about the cost of marketing as much as “how many customers should we be buying” at this new rate.

Back to one of our earlier examples. If the cost to acquirea customer was $100 before, it’ll be about $200 in this last example. And as long as we have a customer spending more than that we’re still in good shape.

And IF it now costs us more than we make, we still have to acquire those customers, or we just plain close the door and walk away. Use the marketing formula to be in control of the number of customers we are acquiring.

 

And, frequently during a recession, small businesses cut back on marketing to keep costs down.

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