9 Ways to Survive Sales Downturns - dummies

9 Ways to Survive Sales Downturns

By Alexander Hiam

The goal of marketing is steady growth, but rarely do things happen according to that ideal. Although you never really know the extent of a sales crisis until it happens, you can know how to handle it. The trick is to make rapid changes to preserve your business and nurture anything that continues to experience at least some demand. Here are some tactics you can use to help you navigate the rough waters of a sales downturn:

  • Minimize costs. As soon as you suspect a downturn in your sales, stop agreeing to fixed-cost contracts and see what you can do to renegotiate any existing ones. (In dire situations, simply notify in writing that you’ll have to break the contract.) Then switch to marketing methods that align costs with actual results. Rescaling your marketing budget (and every other budget) promptly is the only way to right-size for survival in a downturn.

  • Broaden your customer base. Having diversity of customers spreads risk and helps keep your growth steadier and more predictable. A business-to-business marketer who sells solely to one industry is vulnerable to that industry’s cycles. Similarly, a business that specializes in one region or type of customer is more vulnerable than a business that spreads the risk across two or three markets. Broaden your scope to increase the diversity of your customer portfolio (just don’t stretch yourself so you’re trying to sell to customers you don’t know anything about).

  • Diversify your product line. Don’t just rely on one bestselling product to carry the weight of your product line (and by extension your company). As soon as you realize that a particular product is succeeding, start investing in the next crop of products to avoid the risk of putting all your eggs in one basket.

  • Approach huge contracts with caution. Securing a big contract to supply products to a giant buyer may seem like you’ve finally “made it,” but tread carefully. Don’t commit to any single contract that would make up more than a quarter of your sales. You can easily be forced out of business, thanks to the price-cutting or supplier-switching behavior of large buyers. Also, keep the investment and cost side of that contract in a separate accounting silo from the rest of your operations so your more profitable lines of business don’t end up subsidizing the contract accidentally.

  • Minimize inventories and supplies. Big inventories — no matter how good the purchase price — expose you to big risks. If you can’t sell your entire inventory in the next few months, you’re probably buying too far in advance. Demand may fall, and then you’re stuck holding a lot of product. Take the more prudent approach and focus on keeping inventories at a modest level and building good supplier relationships so you can restock quickly in response to changing demand. Also, take a look in your supply closets and everywhere for money tied up needlessly. You may be able to negotiate volume discounts with suppliers and have them hold the inventory items you need so weekly or daily pickups can take the place of on-site (and on-your-books) storage.

  • Maximize product turnover. Rapid sales are the secret to high profits in marketing. If you have certain items that sell frequently, focus on marketing those and build your business on the back of their success. If other items rarely sell, weed them out of your product line. Continue adjusting your product offerings — and your pricing, distribution, and promotion — with the goal of increasing the frequency of orders or sales. Keep working toward more frequent sales and faster turnover so your business can be healthy enough to survive the occasional sales downturn.

    Web-based promotions are a great tool for liquidating inventory that has been sitting around for a month or more. Give out appealing deals and discounts just to turn that inventory and then be more cautious about restocking until you’re sure of which items will turn over again quickly and reliably.

  • Replace employees with contractors. Why have a huge payroll when you can farm out the work to subcontractors and suppliers? Converting fixed in-house labor and equipment costs to variable outside costs is the secret to being lean and mean and ready to survive bad times (or grow rapidly when times are good and opportunity presents itself). So take a hard look at your entire operation — not just your marketing — and sub out any functions you possibly can. Also, make sure your contracts are flexible based on your needs and volumes. It’s nice to have long-term employees who you can rely on, and who rely on you, but remember that your first obligation is to keep the doors open, and too many long-term people on payroll often leads to catastrophic failure and widespread layoffs, which is even worse than subcontracting some of the work out or mixing temporary with full-time employees.

  • Eliminate loss centers. Every business has loss centers — product lines, customers, or activities that don’t make a profit. To eliminate loss centers in your marketing program, take a look at the costs and yields of each marketing activity you engage in. Perhaps you support a sales force because that’s traditional in your industry, but, in fact, more of your business now comes from your website. Web orders are far less expensive to generate (that is, they’re more profitable), so consider cutting the sales force back to a bare minimum (or replacing them with independent reps) and boost your web-related spending, which is more variable and therefore easier to adjust to shifting demand.

  • Switch to lower-cost marketing methods. Many marketers rely on just a handful of techniques every year, repeating the basic formula without major modifications. If you’re following last year’s plan, stop and consider whether you can refocus your marketing program by replacing its most-expensive elements. There are always alternative ways of getting your message out, so it pays to experiment until you find less-expensive approaches that are just as effective.