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.
Injecting new sources of capital doesn’t just help you survive a recession. It also enables you to deliver greater value to your clients so you can thrive in the long run, regardless of what the economy looks like.
Why Injecting New Capital Should Be a Priority
Entrepreneurs who rely on a single source of revenue 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 non-profit researchers have long argued that by establishing and maintaining multiple streams of funding […] organizations are able to avoid excessive dependence on any single revenue source, stabilize their financial positions, and thereby 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) 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.
Diversifying revenue and finding new ways to inject capital can help mitigate such losses so that even if you have to tighten your budget, you will at least maintain sufficient cash flow to keep from going under.
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 rates.
Perhaps 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.
If you decide to increase rates, inform your clients 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 go into effect. It should also provide justification for the rate increase (such as an increase in your own operating costs). The letter should also express gratitude for your clients’ support.
There is no guarantee that you won’t lose clients if you increase your rates. However, if you are able to replace them with new clients 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 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.
Potential customers 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 clients, they are more likely to also stand to benefit from your services. In fact, 78 percent of marketers report referral marketing as delivering “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 clients while simultaneously fueling loyalty in your current client 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 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.
You must also be aware of the opportunities and challenges facing potential clients in the new market. You will only achieve long-term success if you can offer dependable results. Don’t jump into a new market until you’ve done your research.
4. Join a reseller program.
Even 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.
For example, as vcita’s Amy Wilder explains, the company’s reseller program offers significant commissions. The program makes it easy for entrepreneurs to co-manage clients’ 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, 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.”
By partnering with third-party reseller programs that are relevant to their clients, consultants can further increase their revenue as they deliver greater value to their target audience. Choose programs that are 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 solid match for your clients’ needs.
5. Introduce a new product or service.
When 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.
Promotion should start with your existing customers. This could entail offering them a special preview or sample of the service. Alternatively, you might provide an offer for a discount on 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 an ideal place to begin your marketing efforts to ensure that the new service starts generating revenue immediately.
6. Niche down.
After 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.
Of course, before you niche down, make sure you are truly an expert. Customers will quickly become dissatisfied if you market yourself as a specialist but continue to provide generalist-level services.
7. Know what to cut.
The 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 underperforming services allows you to focus your marketing budget on the services that generate the most revenue.
Auditing your business operating expenses can also help you identify whether current expenses are necessary, or if you could get the same service elsewhere for a lower cost.
Recessions are Inevitable — Failure Isn’t
Yes, 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.
Published First on Due. Read Here.
Featured Image Credit: Photo by Andrea Piacquadio; Pexels; Thank you!