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Dealing with the Current Downturn

Written by: Bill Boyer

Article Overview: The current economic times are challanging, but we cannot "throw up our hands" and just react. We need to take smart, measured actions.

Dealing with the Current Downturn

Princeton University did a study to determine the best way to increase profits and/or minimize losses in a downturn. They came up with four approaches: cut costs, increase sales to existing customers, up sell to existing customers (product improvements or enhancements), or get new customers. Of all of these, it was determined that cost cutting was the easiest. Unfortunately, it was also the least effective in maximizing overall financial performance. Getting new customers was the most effective approach, but the hardest strategy to implement.

Your effectiveness in getting new customers is often directly related to your investment in marketing efforts. Unfortunately, this is one of the expenses that many companies eliminate or cut back severely during downturns. Jay Conrad Levinson, the father of Guerilla Marketing, states that it takes five “touches” of marketing efforts to attract the interest of a new customer. This is not five contacts within one marketing effort--it must be a mix of various efforts. So to attract new customers, multiple marketing efforts must be utilized.

The company must be judicious in deciding what marketing efforts to use. You should have some type of measurement to determine which efforts yield the best return. The most effective way to do this is to record the information gained by asking every potential customer who contacts your business how they heard about your company. This information should be summarized, so that you can compare the cost of each marketing effort with the number of customers gained, and, if possible, the approximate profit per customer. If the estimated profit per customer over a certain time period, multiplied by the number of customers, yields a positive return over the same time period, this is an indication that this marketing effort is of value. If the cost is higher than the return, this marketing effort should be revised, replaced, or discontinued completely.

Generally, the success rate of getting customers from referrals is the highest of any marketing effort. Ask your customers for referrals to their friends and associates. Talk with your networking associates and ask for customer referrals. Especially in today’s tough economic climate, most people are willing to give you some help, especially if it could mean referrals back to them from you or your staff.

Spend more time with your existing customers. Listen for their problems. Be sure you understand their needs. Don’t just try to sell what you have: you could find that some slight modifications in your product or service could better serve their needs, and possibly better serve other customers as well. When you can solve their problems, their loyalty to you will increase. If you do not have a product or service that could help them, refer them to someone else you know and trust. That referral could bring you other customers from that source.

Consider upgrades to your services or products that could improve the benefits that your customers receive. Often, you can price your upgraded services/products to give you a higher margin. Just think about “supersizing” in the fast food world: how much of that price increase goes to the bottom line?

Carefully review your product or service offerings; if possible, analyze them to determine which ones bring the highest profit. Once you have determined this, emphasize the sale of these products or services. Sometimes it is a good move to cut a product or service from your sales offerings if it does not give you a satisfactory return.

Cost reductions must also be part of your targeted approach for survival in any tough market. Compare on a percent to sales basis your expenses for the past period against prior periods. Studies have been shown that over the past four year period most expenses have gradually increased, often for no specific reason. It was easy to overlook those gradual increases; now is the time to pay attention to them.

It’s easy to cut the “nice-to-have-but-not-absolutely-necessary” expenditures. This could be a new vehicle, logo shirts or hats for all employees, meals at expensive restaurants, etc. It’s harder to cut staffing, or to reduce the hours of full-time employees. All expense cuts must be subject to a cost/benefit analysis.

As you have seen, increasing your bottom line can be done by increasing sales as well as by decreasing expenses. It is up to you to determine the approaches that are most effective for your business.

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  Career Change in an Economic Downturn
  Do you want to succeed in a down economy? Many have; you can too.
  'Why it pays to reward your customers'
  Quick Tips For Hiring In A Recession

Article Tags: coaching, consulting, Downturn, economy, management, marketing, products, profits, referrals, sales, small business



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