Recessions are an inevitable part of the market cycle – and there’s no denying they can be scary for advisors and the businesses they work with. Regardless of the size of the business, economic failure can cause serious financial risk. As consumer spending declines, so do corporate revenues and profits.
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This can create a dangerous situation. Businesses may have a tendency to view B2B services as an unnecessary expense. This is especially true when they need to tighten their budget.
In addition to ensuring that their services are truly relevant to their customers, to survive these times of economic uncertainty, entrepreneurs must find ways to inject new capital into their businesses. By expanding your income options, you can greatly increase your chances for long-term success. They do this by ensuring that a downturn in one area doesn’t completely wipe out your business.
Injecting new sources of capital won’t just help you survive a downturn. It also allows you to deliver more value to your customers to ensure long-term growth no matter what the economy looks like.
Why should injecting new capital be a priority?
Entrepreneurs who rely on a single source of income can expose themselves to significant financial risk even in relatively stable times.
In their article “Diversification Reconsidered” from the Journal of Social Entrepreneurship, Peter Frukin and Elizabeth K. Keating argue, “Business and nonprofit researchers have debated establishing and maintaining multiple sources of funding. […] Organizations can avoid excessive dependence on any source of income, stabilize their financial position and thereby reduce the risk of financial crises.
Few things can ruin your relationship with customers more than failure. Changes in their financial situation (or your own) may lead to requests to renegotiate contracts. It may lead to them getting similar services from higher cost providers.
Entrepreneurs who focus on one type of service or a small group of customers are at greater risk. A sudden loss of your customer base due to a recession can spell disaster. It can cause you to run out of money before you have time to react to the situation.
Multiplying income and finding new ways to invest capital can help mitigate such losses so that even if you have to tighten your budget, you’ll at least have enough cash flow to keep you out of control.
Options for getting new capital (to deal with recession)
Now that you understand the benefits of making your business more resilient to the effects of a recession, you’re wondering where and how to start. The following ideas are some of the best ways to inject new capital (or better yet, keep the money you already have) to increase your income, even when the economic picture looks bleak.
1. Adjust your rates.
Perhaps the easiest thing an entrepreneur can do in the midst of a recession is adjust their prices. After all, in times of rising inflation, your own costs of running a business can increase dramatically. If you continue to charge the same rates to your customers, your cash flow will suffer as profit margins shrink.
Of course, during a recession, a significant price increase may be enough to make some customers stop doing business with you. As such, this option should always be approached with extreme caution. Price increases or decreases may need to be proposed on a client-by-client basis to balance risk and reward.
If you decide to raise rates, notify your customers in advance of the pending changes with a rate increase letter. This letter should be clear and straightforward, explaining what the increase will be and when it will be implemented. It must also provide justification for rate increases (such as increases in your own operating costs). The letter should express gratitude for your customers’ support.
There’s no guarantee you won’t lose customers if you raise your rates. But if you can quickly replace them with new customers, you can stay ahead of inflation.
2. Use a referral program.
Referral programs reward existing customers who refer family, friends or colleagues to use your products or services. Reward options can include giving a current customer a discount on their next bill after someone signs up for your services. If you get more people to sign up for your services, you can offer bigger discounts.
Getting referrals from existing customers is a cost-effective way to grow your customer base while keeping marketing costs down.
Potential customers are more likely to follow up on a referral from someone they trust. At the same time, since you are in the same “circle” with existing customers, they are more likely to benefit from your services. In fact, 78 percent of marketers report that referral marketing delivers “excellent” leads, with conversion rates four times higher than other marketing methods.
With a referral program, you can create a true “win-win” situation that helps you acquire new customers while building loyalty with your existing customer base.
3. Offer your services to new types of customers.
Focusing on a specific niche helps entrepreneurs develop a unique selling proposition for potential customers. However, targeting too narrow a niche presents a limitation. To prevent this, entrepreneurs can strategically evaluate how to offer their services to new groups of customers that fit outside of their current marketing markets.
For example, if you provide consulting services to local grocery store chains, consider expanding your services to help other companies in related areas, such as food and beverage manufacturers. Alternatively, you can continue to focus on your core target market, but expand your reach into new areas by marketing to customers in different parts of the country.
When targeting a new audience, some adjustments to your existing message may be necessary. See how others targeting that market are engaging with their audience. Identifying successful strategies, such as key marketing channels and the tone of their marketing communications, will help you identify how to best appeal to a new market.
You should also be aware of the opportunities and challenges potential customers face in the new market. If you can deliver reliable results, you will achieve long-term success. Don’t jump into a new market until you’ve done your research.
4. Join a reseller program.
More powerful than earning a few dollars from your referrals is joining software companies’ “reseller” programs. These are often partnerships that allow consultants and entrepreneurs to sell third-party applications as a central part of their value proposition to their clients.
For example, as vcita’s Amy Wilder explains, the company’s reseller program offers significant commissions. The program makes it easy for entrepreneurs to manage their customers’ small business management platform together. It basically allows you to offer “Digital Transformation as a Service”.
The program is also suitable for the needs of individual entrepreneurs. “For example, let’s say you run a marketing agency. You’re laser-focused on selling training packages that focus on features like lead generation and nurturing. If you’re a business consultant, you might pay more attention to our CRM features,” Wilder suggests. “Either way, you can choose accordingly. You have the freedom to pick and choose features based on your business.”
By partnering with third-party vendor programs that are relevant to their clients, advisors can further increase their revenue while delivering more value to their target audience. Select programs that match your current service areas. Or choose programs that help you expand the types of services you offer. Success as a reseller ultimately depends on partnering with brands that are a strong match for your customers’ needs.
5. Introducing a new product or service.
When introducing new products or services to your customers, choose something that complements your core offering. It should serve the same target audience, and it will allow you to increase the lifetime value of your existing customers by offering them other attractive customers.
Adding a successful product or service will improve results for your customers. This is typically by helping them save time or money, or by helping them make better use of existing resources. New services should match an entrepreneur’s existing skill set and strengths. An alternative is to hire additional staff with experience in that area. During a recession, focusing on the services you provide yourself without the need to hire additional staff can be key to controlling costs during a startup.
Promotion should start with your existing customers. This may include providing a special preview or sample of the Service. Alternatively, you can offer a discount for the new service as a pre-existing customer. Existing customers are 50 percent more likely to buy from you in the first place, so this is the perfect place to start your marketing efforts to make sure your new service starts generating revenue right away.
6. Niche down.
After talking about introducing new services or targeting new audiences, the idea of downloading may seem counterintuitive. However, targeting a more specific, narrower niche can be key to driving revenue growth. It strengthens the customer loyalty needed to sustain your business.
The idea behind scaling down is that you become less of a generalist and more of a specialist.
Decluttering has several inherent benefits. For one, they tend to be competitors with such a strong focus on your target audience. Narrowing down your niche will help you grow your capital by becoming the leading expert in your niche.
Of course, before you download, make sure you’re really a pro. If you promote yourself as a specialist but continue to provide generic services, customers will quickly become dissatisfied.
7. Know what to cut.
The phrase “addition by subtraction” is generally used when you get something of value by getting rid of something negative. In essence, you can make your business leaner and more efficient. They do this by eliminating excesses that prevent them from being as effective as possible.
For example, let’s say you offer ten service packages, but only four generate significant revenue. Because of this, you may lose money by marketing low-income services. Cutting low-performing services allows you to focus your marketing budget on services that generate more revenue.
Auditing your business operating expenses can help you identify whether recurring expenses are necessary, or if you can get the same service elsewhere for less.
Failure is inevitable – failure is not.
Yes, recessions are scary. But by planning ahead to inject new capital into your own business endeavors, you can weather the storm ahead.
By managing your cash flow properly and using appropriate methods to reduce expenses and multiply your income (even if temporary), you can raise new capital investments and build confidence.
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