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, companies’ revenues and profits will also decline.
This can create a precarious situation. Businesses may be more likely to view B2B services as an unnecessary expense. This is especially true in times when they need to tighten their budget.
Besides ensuring that their services can become truly essential to their customers, to survive these periods of economic uncertainty, entrepreneurs must find ways to inject new capital into their business. Expanding income options can greatly increase your chance of long-term success. You will do this by ensuring that a decline in one area does not completely wipe out your business.
Injecting new sources of capital doesn’t just help you survive a recession. It also enables you to deliver greater value to your customers so that you can thrive in the long term, no matter what the economy looks like.
Why injecting new capital should be a priority
Entrepreneurs who rely on a single source of income can put themselves at significant financial risk, even during relatively stable times.
In their article “Diversification Reconsidered” from the Journal of Social Entrepreneurship, Peter Frumkin and Elizabeth K. Keating explain: “Business and nonprofit researchers have long argued that by establishing and maintaining multiple streams of funding. […] organizations are able to avoid excessive dependence on any single source of income, stabilize their financial positions and thus reduce the risk of financial crises.”
Few things are more likely to disrupt the relationships you have with clients than a recession. Changes to their financial circumstances (or your own) may lead to requests to renegotiate contracts. This may cause them to get similar services from a cheaper provider.
Entrepreneurs focused on a single type of service or a small group of customers are at greatest risk. Suddenly losing most of your customers to a recession can spell disaster. This can cause you to run out of cash before you have time to react to the situation.
Diversifying income and finding new ways to inject capital can help mitigate such losses so that even if you have to tighten your budget, you’ll at least maintain sufficient cash flow to avoid going under.
Options for Finding New Capital (To Weather a Recession)
Now that you understand the value of making your business more resilient to the impact of a recession, you’re no doubt wondering where and how to start. The following ideas are some of the best ways to inject new capital (or better yet, keep the cash you already have) so you can grow your income even when the economic picture looks bleak.
1. Adjust your rates.
Perhaps the simplest thing an entrepreneur can do in the midst of a recession is adjust their rates. After all, in times of rising inflation, your own costs of doing business can increase dramatically. If you continue to charge your customers the same rates, your cash flow will suffer as your profit margins decrease.
Of course, during a recession, a significant rate increase can be enough to make some customers 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.
If you decide to increase rates, notify your customers in advance of pending changes with a rate increase letter. This letter should be clear and direct, explaining what the increase will be and when it will take effect. It must also provide justification for the rate increase (such as an increase in your own operating costs). The letter should also express gratitude for your customers’ support.
There is no guarantee that you won’t lose customers if you raise your rates. However, if you can replace them with new customers at the higher rate, you will be better able to stay ahead of inflation.
2. Use a referral program.
Referral programs reward existing customers who refer family, friends or business colleagues to use your products or services. Reward options can include offering a current customer a discount on their next bill after a person they refer signs up for your services. You can offer even bigger discounts if they get more people to sign up for your services.
Getting referrals from existing clients is a cost-effective way to grow your client base when you need to cut back on marketing costs.
Potential clients are more likely to pursue a referral that comes from a person they trust. At the same time, because they are in the same “circle” as current customers, they are more likely to take advantage of your services as well. In fact, 78 percent of marketers report that referral marketing produces “excellent” leads, with conversion rates four times higher than other marketing methods.
With a referral program, you can create a true “win-win” scenario that helps you find new customers while instilling loyalty in your current customer base.
3. Offer your services to new types of clients.
Focusing on a specific niche can help entrepreneurs develop a unique selling proposition for potential customers. However, targeting too narrow a niche can be limiting. To counter this, entrepreneurs can strategically evaluate how they can begin offering their services to new groups of customers that fit outside of their current target market.
For example, if you offer consulting services to local grocery store chains, you might consider expanding your services to assist other companies in related niches, such as food and beverage producers. Alternatively, you can continue to focus on your core target market but expand your reach into new areas by marketing to customers in another part of the country.
When targeting a new audience, some adjustments to your current messaging may be necessary. See how others who are already targeting that market are engaging with their audience. Identifying successful tactics, such as key marketing channels and the tone of their marketing, can 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. You will only achieve long-term success if you can provide reliable results. Don’t jump into a new market before doing your research.
4. Join a reseller program.
Even more powerful than earning a few bucks from your referrals is joining software companies’ “reseller” programs. These are often partnerships that enable consultants and entrepreneurs to sell third-party applications as a central part of the value they deliver to their clients.
For example, as vcita’s Amy Wilder explains, the company’s reseller program offers substantial commissions. The program makes it easy for entrepreneurs to co-manage customers’ use of the small business management platform. It essentially allows you to offer “digital transformation as a service”.
The program is also adaptable to the needs of individual entrepreneurs. “For example, say you run a marketing agency. You’ll likely be laser-focused on selling training packages that focus on features like lead capture and nurturing. If you’re a business consultant, you might be more focused on our CRM features,” suggests Wilder. “Anyway, you can choose accordingly. You have the freedom to pick and choose features à la carte, based on your business.”
By partnering with third-party reseller programs relevant to their clients, consultants can further increase their income as they deliver greater value to their target audience. Choose programs related to your current service areas. Or choose programs that can help you expand on the types of services you can provide. Success as a reseller is ultimately dependent on partnering with brands that are a good match for your customers’ needs.
5. Introduce a new product or service.
When introducing new products or services to your customers, choose something complementary to your primary offering. This should serve the same target audience and allow you to potentially increase the lifetime value of your existing customers by providing something different that resonates with them.
A successful product or service addition will further improve the outcomes for your customers. This typically happens by helping them save time or money, or helping them make better use of current resources. New services must match an entrepreneur’s current skills and strengths. The alternative is to hire additional staff with expertise in that area. During a recession, the key to keeping expenses manageable during a launch can be to focus on services you can provide yourself without hiring additional staff.
Promotion should start with your existing customers. This may involve them offering a special preview or sample of the service. Alternatively, as an existing customer, you can provide an offer for a discount on the new service. Existing customers are 50 percent more likely to buy from you in the first place, so this is an ideal place to start your marketing efforts to ensure that the new service starts generating revenue immediately.
6. Niche down.
After talking about launching new services or targeting new audiences, the idea of nishing may seem counterintuitive. However, targeting a more specific, narrow niche can be the key to generating revenue growth. This will strengthen the customer loyalty needed to sustain your business.
The idea behind nishing down is that you become less of a generalist and more of a specialist.
There are several inherent advantages to nishing. For one, there tend to be fewer competitors with such an intense focus on your target audience. Niching can also help you grow your capital as you become the best expert for your niche.
Of course, before you make a niche, make sure you are truly an expert. Clients will quickly become disaffected if you market yourself as a specialist but continue to provide general services.
7. Know what to cut.
The phrase “addition by subtraction” is commonly used to describe when you gain something of value by getting rid of something negative. Essentially, you can make your business leaner and more 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 probably losing money by continuing to market the low-earning services. By cutting the underperforming services, you can focus your marketing budget on the services that generate the most revenue.
Auditing your business’s operating expenses can also help you identify whether ongoing expenses are necessary, or if you can get the same service elsewhere at a lower cost.
Recessions are inevitable – failure is not
Yes, recessions are scary. But with proactive planning to inject new capital into your own business endeavors, you can weather the storms ahead.
By properly managing your cash supply and using appropriate methods to cut costs and diversify your income (even if only temporarily), you can raise new capital investments and proceed with confidence.
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