If you've been watching the news lately, you'll know that parts of the economy are starting to struggle and the mood is changing. The latest ANZ business survey headline reads "Business confidence remains on the ropes, hitting a new six-year low in August". The dairy industry is struggling and construction in some sectors is starting to be affected by the oversupply of houses.
A number of businesses I talk to are concerned about the current climate and if sales will be affected over the next 6-12 months. It's important to be aware of the climate and adapt accordingly, but also remember that all these things are in cycles, so this is nothing new (some suggest every seven years, but this will vary depending on the market).
As these cycles change, what can you do to make sure any impact is minimal to sales and profits for your business?
Smart businesses who recognise the downward trends will be looking for strategies to minimise effects on their business.
Here are six strategies that will help to ensure your profits stay intact even when your market is in a downturn:
1) Be in more than one market
Every market and customer group has highs and lows every few years, so it's important to make sure that you have customers in more than one market. Often when one market is at the bottom of a cycle, another is growing. By selling to more than one market you will still have growth in at least one area of your business.
Look at your existing customers in segments or groups. Some groups will be growing - spending more each sale or more new customers coming to your business. Other customer groups will be shrinking - they are spending less, buying less frequently or not at all. Identify the customer groups that are growing and target them individually in your marketing.
Note: there may be some customer groups that might be growing - but are not attracted to your company - and you don't recognise them. Check out what areas might be growing in the market or your competition is promoting to that you are not.
In every business there are a number of different customers and markets. Let's look at two examples of companies with different markets in a downturn:
IT Company: This IT company might have four main customer groups: residential, commercial, new installs, and maintenance.
Opportunities: Commercial might be slow but there could be plenty of home based businesses starting up and commercial requiring help scaling down; there could be opportunities to decrease costs for these businesses with current telephone technology and cloud based solutions for both existing and new customers.
Water Pump Installation and Servicing: This company may have three main customer groups: farmers, new subdivisions and servicing.
Opportunities: Dairy farming might be quiet; but beef and sheep farmers could still be good. While new subdivisions, and pump servicing will still have growth.
Every small business should have a number of different customer groups, to avoid being too exposed when these cycles come and go.
2) Look after existing customers
Make sure you keep looking after your existing customers and go the extra mile. Put more focus into building good relationships. It’s much easier to keep old customers happy, than find new ones. This is also a good long term strategy, for when the cycle comes back around.
3) Look for more of the type of customers you already deal with
This seems obvious, but are you doing it?
If a trades business currently gets work from two large building companies, they should seek out others. Relying on a small number of customers is dangerous anyway because if one is lost, the business is very exposed.
4) Diversify
Think about what else you can offer your existing customers.You might be able to re-package or sell them something different, introduce new lines.
For example, a shoe shop in a recession, could expand their range to include kids school shoes, workboots, and add on's like laces, protective sprays, polishes, etc.
5) Keep things tight
It's important to make sure that any losses you incur in a downturn are kept to a minimum. So work on:
6) Keep investing in the right areas
There are some areas of your business that you should spend more on like:
Action Points
1) Profile your customers and list what markets and opportunities there are for growth.
2) Go through your expenses to see what you can reduce.
3) Decide on one area you need to improve on personally that will help the business (this might be marketing, selling, negotiation, dealing with staff, etc), and commit to improving with some formal training.
A number of businesses I talk to are concerned about the current climate and if sales will be affected over the next 6-12 months. It's important to be aware of the climate and adapt accordingly, but also remember that all these things are in cycles, so this is nothing new (some suggest every seven years, but this will vary depending on the market).
As these cycles change, what can you do to make sure any impact is minimal to sales and profits for your business?
Smart businesses who recognise the downward trends will be looking for strategies to minimise effects on their business.
Here are six strategies that will help to ensure your profits stay intact even when your market is in a downturn:
1) Be in more than one market
Every market and customer group has highs and lows every few years, so it's important to make sure that you have customers in more than one market. Often when one market is at the bottom of a cycle, another is growing. By selling to more than one market you will still have growth in at least one area of your business.
Look at your existing customers in segments or groups. Some groups will be growing - spending more each sale or more new customers coming to your business. Other customer groups will be shrinking - they are spending less, buying less frequently or not at all. Identify the customer groups that are growing and target them individually in your marketing.
Note: there may be some customer groups that might be growing - but are not attracted to your company - and you don't recognise them. Check out what areas might be growing in the market or your competition is promoting to that you are not.
In every business there are a number of different customers and markets. Let's look at two examples of companies with different markets in a downturn:
IT Company: This IT company might have four main customer groups: residential, commercial, new installs, and maintenance.
Opportunities: Commercial might be slow but there could be plenty of home based businesses starting up and commercial requiring help scaling down; there could be opportunities to decrease costs for these businesses with current telephone technology and cloud based solutions for both existing and new customers.
Water Pump Installation and Servicing: This company may have three main customer groups: farmers, new subdivisions and servicing.
Opportunities: Dairy farming might be quiet; but beef and sheep farmers could still be good. While new subdivisions, and pump servicing will still have growth.
Every small business should have a number of different customer groups, to avoid being too exposed when these cycles come and go.
2) Look after existing customers
Make sure you keep looking after your existing customers and go the extra mile. Put more focus into building good relationships. It’s much easier to keep old customers happy, than find new ones. This is also a good long term strategy, for when the cycle comes back around.
3) Look for more of the type of customers you already deal with
This seems obvious, but are you doing it?
If a trades business currently gets work from two large building companies, they should seek out others. Relying on a small number of customers is dangerous anyway because if one is lost, the business is very exposed.
4) Diversify
Think about what else you can offer your existing customers.You might be able to re-package or sell them something different, introduce new lines.
For example, a shoe shop in a recession, could expand their range to include kids school shoes, workboots, and add on's like laces, protective sprays, polishes, etc.
5) Keep things tight
It's important to make sure that any losses you incur in a downturn are kept to a minimum. So work on:
- Reducing unnecessary expenses
- Becoming more efficient with your production or service
- Non-performing staff need to come up to speed or leave/be reassigned (this may seem harsh, but staff that are not producing results will reduce the effectiveness of the whole team)
- If price is an issue, offer more economic options for customers (without the bells and whistles)
- Protect your margins (be careful as selling two times as much for half the margin will not help)
6) Keep investing in the right areas
There are some areas of your business that you should spend more on like:
- Sales related activities (keep marketing to your customers - but always measure what leads and sales these are generating)
- Staff training (make sure your sales team keep learning and improving as this will improve sales)
- Your training (as a business owner, the better you are at business, the better your business will be - so don't stop investing time and money in your own training, and seek quality advice when you need to)
Action Points
1) Profile your customers and list what markets and opportunities there are for growth.
2) Go through your expenses to see what you can reduce.
3) Decide on one area you need to improve on personally that will help the business (this might be marketing, selling, negotiation, dealing with staff, etc), and commit to improving with some formal training.
Like this? Subscribe to receive new monthly articles by email.
