Recessions are an inevitable part of the market cycle, and there’s no denying that they can be scary for consultants and the businesses they work with. Regardless of the size of the business, a recession can pose a serious financial risk. As consumer spending declines, so too will companies’ revenue and profit.
This can create a precarious situation. Businesses may be more inclined to view B2B services as an unnecessary expense. This is especially true during times when they need to tighten their budget.
Aside from ensuring that their services can become truly essential to their clients, to survive these periods of economic uncertainty, entrepreneurs must find ways to inject new capital into their business. By expanding revenue options, you can greatly increase your odds for long-term success. You’ll do this by ensuring that a decline in one area doesn’t completely wipe out your business.
Why Injecting New Capital Should Be a PriorityEntrepreneurs who rely on a single source of revenue can put themselves at significant financial risk, even during relatively stable times.
Few things are more likely to disrupt the relationships you have with clients than a recession. Changes to their financial circumstances (or your own) can result in requests to renegotiate contracts. It might cause them to obtain similar services from a less expensive provider.
Entrepreneurs who are focused on a single type of service or a small group of clients are at the greatest risk. Suddenly losing the bulk of your clients due to a recession can spell disaster. It could cause you to run out of cash before you have time to respond to the situation.
Seven Options for Finding New Capital (to Resist a Recession)Now that you understand the value of making your business more resistant to the impact of a recession, you’re doubtless wondering where and how to get started. The following ideas are some of the best ways to inject new capital (or better retain the cash you already have) so you can grow your revenue, even when the economic picture looks bleak.
1. Adjust Your RatesPerhaps the simplest thing an entrepreneur can do in the midst of a recession is adjust their rates. After all, during times of rising inflation, your own costs for doing business can increase dramatically. If you continue to charge the same rates to your clients, your cash flow will suffer as your profit margins decline.
Of course, during a recession, a significant rate hike could be enough to cause some clients to stop doing business with you. As such, this option should always be approached with extreme caution. Rate increases or decreases may need to be approached on a client-by-client basis to balance risk and reward.
2. Use a Referral ProgramReferral programs reward existing customers who refer family, friends, or business colleagues to use your products or services. Reward options could include offering a current client a discount off of their next invoice after a person they refer signs up for your services. You could even offer larger discounts if they get more people to sign up for your services.
Obtaining referrals from existing clients is a cost-effective way to grow your client base when you need to cut back on marketing costs.
3. Offer Your Services to New Types of ClientsFocusing on a specific niche can help entrepreneurs develop a unique selling proposition for potential clients. However, targeting too narrow of a niche can prove limiting. To counteract this, entrepreneurs can strategically evaluate how they can begin offering their services to new groups of clients who fit outside their current target market.
For example, if you offer consulting services to local grocery store chains, you could consider expanding your services to assist other companies in related niches, such as food and beverage producers. Alternatively, you could continue to focus on your core target market, but expand your reach to new areas by marketing to clients in a different part of the country.
When targeting a new audience, some adjustments to your current messaging may be needed. Look at how others who already target that market engage with their audience. Identifying successful tactics, such as key marketing channels and the tone of their marketing, can help you identify how best to appeal to a new market.
4. Join a Reseller ProgramEven more powerful than earning a few dollars from your referrals is joining software companies’ “reseller” programs. These are often partnerships that enable consultants and entrepreneurs to sell third-party apps as a central part of the value they deliver to their clients.
The program is also adaptable to the needs of individual entrepreneurs. “For example, let’s say you run a marketing agency. You’ll likely be laser-focused on selling training packages that focus on features such as lead-capturing and nurturing. If you’re a business consultant, you might be more focused on our CRM features,” Wilder suggests. “Either way, you can choose accordingly. You have the freedom to pick and choose features à la carte, based on your business.”
5. Introduce a New Product or ServiceWhen introducing new products or services to your clients, choose something complementary to your primary offering. It should serve the same target audience, and allow you to potentially increase the lifetime value of your existing customers by providing something else that appeals to them.
A successful product or service addition will further improve outcomes for your clients. This typically happens by helping them save time or money, or helping them make better use of the current resources. New services should match an entrepreneur’s current skill set and strengths. The alternative is hiring additional staff with expertise in that area. During a recession, focusing on services that you can provide yourself without needing to hire additional staff could be key to keeping expenses manageable during a launch.
6. Niche DownAfter talking about introducing new services or targeting new audiences, the idea of niching down may seem counterintuitive. However, targeting a more specific, narrow niche could prove key to generating revenue growth. It will bolster the client loyalty needed to sustain your business.
The idea behind niching down is that you become less of a generalist and more of a specialist.
There are several inherent advantages to niching down. For one, there tend to be fewer competitors with such an intense focus on your target audience. Niching down can also help you grow your capital as you become the go-to expert for your niche.
7. Know What to CutThe phrase “addition by subtraction” is generally used to describe when you gain something of value by getting rid of something negative. Essentially, you can make your business more lean and agile. You do this by getting rid of the excess that keeps you from being as efficient as possible.
For example, let’s say you offer ten service packages, but only four generate significant revenue. As a result, you are likely losing money by continuing to market the low-earning services. Cutting the underperforming services allows you to focus your marketing budget on the services that generate the most revenue.
Recessions Are Inevitable—Failure Isn’tYes, recessions are scary. But with proactive planning to inject new capital into your own business efforts, you can weather the storms ahead.
By appropriately managing your cash supply and using relevant methods to cut costs and diversify your revenue (even if it’s only temporary), you can garner new capital investments and forge ahead with confidence.