HomeBusiness7 Ways Entrepreneurs Can Invest New Capital in Their Business During a Recession
7 Ways Entrepreneurs Can Invest New Capital in Their Business During a Recession
September 16, 2022
Recessions are an inevitable part of the market cycle and there is no denying that they can scare consultants and the companies they work with. Regardless of the size of a business, a recession can pose a serious financial risk. As consumer spending declines, companies’ revenues and profits will decline.
This may create a dangerous situation. Businesses may be more inclined to view B2B services as an unnecessary expense. This is especially true in times when they need to tighten their budget.
To survive these periods of economic uncertainty, entrepreneurs must not only ensure that their services can become truly important to their customers, but also find ways to inject new capital into their business. By expanding your income-generating options, you can greatly increase your chances of long-term success. You’ll do this by making sure that a downturn in one area doesn’t completely wipe out your business.
Injecting new sources of capital won’t just help you weather a recession. It also allows you to deliver great value to your customers so you can thrive in the long run, 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 expose themselves to significant financial risk even in relatively stable times.
In their article “Rethinking Diversification” in the Journal of Social Entrepreneurship, Peter Frumkin and Elizabeth K. Keating explain: “Business and nonprofit researchers have long argued that creating and maintaining multiple streams of funding […] organizations can avoid over-reliance on any one source of income, stabilize their financial position and thereby reduce the risk of financial crises.”
Few things are more likely to ruin your customer relationships than a recession. Changes in their financial situation (or your own) may lead to requests for contract revisions. This may result in them receiving similar services from a less expensive provider.
Entrepreneurs focused on one type of service or a small group of customers are most at risk. The sudden loss of most of your customers to a recession could spell disaster. This can cause you to run out of money before you have a chance to react to the situation.
Diversifying your income and finding new ways to inject capital can help mitigate such losses, so even if you have to tighten your budget, you can at least keep enough cash flow so you don’t go broke.
Options for finding new capital (to counter the recession)
Now that you understand the value of making your business more resilient to the impact of a recession, you are no doubt wondering where and how to start. The following ideas are some of the best ways to inject new capital (or better still, keep the cash you already have) so you can increase your income even when the economic picture looks bleak.
1. Adjust your bids.
Perhaps the easiest thing an entrepreneur can do in the midst of a recession is to adjust their rates. After all, in times of rising inflation, your own costs of doing business can skyrocket. If you continue to charge your customers the same rates, your cash flow will suffer as your profits will decrease.
Of course, during a recession, a significant rate increase may be enough to make some customers stop doing business with you. Thus, this option should always be approached with extreme caution. A rate increase or decrease may be required for each client to balance the risk and reward.
If you decide to raise your rates, inform your customers in advance of the upcoming 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 should also include a rationale for the rate increase (for example, an increase in your own operating costs). The letter should also express gratitude for the support of your customers.
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 a higher rate, you will be able to stay ahead of inflation better.
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 might include offering a current customer a discount on their next account after the person they referred signs up for your services. You can even offer big discounts if they get more people to sign up for your services.
Getting referrals from existing customers is a cost-effective way to expand your customer base when you need to cut down on marketing spend.
Potential clients are more likely to seek a recommendation from someone they trust. At the same time, since they are in the same “circle” as current customers, they are more likely to benefit from your services as well. In fact, 78 percent of marketers report that referral marketing generates “great” leads and conversion rates are four times higher than other marketing methods.
With a referral program, you can create a truly win-win scenario that will help you find new customers while increasing the loyalty of 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 counteract this, entrepreneurs can strategically evaluate how they can start offering their services to new customer groups that are not in line with their current target market.
For example, if you offer consulting services to local grocery chains, you might consider expanding your services to help other companies in related niches, such as food and beverage companies. Alternatively, you can continue to focus on your main target market but expand your reach into new areas by marketing to clients in another part of the country.
When targeting a new audience, some adjustments to your current messaging may be required. See how other people who are already targeting this market are interacting with their audience. Identifying successful tactics, such as key marketing channels and their marketing tone, can help you determine how best to reach out to a new market.
You should also be aware of the opportunities and challenges that potential customers face in a new market. You will only achieve long-term success if you can offer reliable results. Don’t enter a new market until you’ve done your research.
4. Join the Reseller Program.
Even more effective than earning a few dollars from your referrals is participating in software company “reseller” programs. Often these are partnerships that allow consultants and entrepreneurs to market third-party applications as a central part of the value they bring to their clients.
For example, as vcita’s Amy Wilder explains, the company’s reseller program offers significant commissions. The program makes it easier for entrepreneurs to co-manage customers’ use of the small business management platform. Essentially, it allows you to offer “digital transformation as a service”.
The program is also adapted to the needs of individual entrepreneurs. “For example, suppose you run a marketing agency. You’ll likely be focusing on selling training packages that focus on features like lead generation and nurturing. If you’re a business consultant, you might want to focus more on our CRM features,” Wilder suggests. “In any case, you can choose accordingly. You have the freedom to choose menu options based on your business.”
By partnering with third-party reseller programs that are relevant to their clients, consultants can further increase their income as they bring more value to their target audience. Choose programs that are related to your current service areas. Or choose programs that will help you expand the range of services you can provide. The success of a reseller ultimately depends on partnering with brands that fully meet the needs of your customers.
5. Introduce 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 allow you to potentially increase the lifetime value of your existing customers by offering something else they love.
Successfully adding a product or service will further improve results for your customers. This usually happens by helping them save time or money, or by helping them make better use of current resources. New services should fit the entrepreneur’s current skill set and strengths. The alternative is to hire additional staff with experience in this area. During a recession, focusing on services that you can provide yourself without having to hire additional staff can be key to managing startup costs.
Promotion should start with your existing customers. This may entail offering a special preview or sample service. Alternatively, you can provide a discount on a new service as an existing customer. Existing customers are 50% more likely to buy from you, so this is the perfect place to start your marketing efforts to ensure your new service starts generating revenue right away.
6. Niche down.
After talking about introducing new services or targeting a new audience, the idea of finding a niche might seem counterintuitive. However, targeting a more specific, narrow niche can be the key to increasing revenue. This will strengthen the customer loyalty you need to keep your business running.
The idea behind shrinking a niche is that you become less of a generalist and more of a specialist.
There are several inherent advantages of niche down. First, there are usually fewer competitors with such intense focus on your target audience. Finding a niche can also help you increase your capital as you become an expert in your niche.
Of course, before venturing into a niche, make sure you are truly an expert. Clients will quickly become frustrated if you position 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. Basically, you can make your business more cost-effective and flexible. You do this by getting rid of the frills that prevent you from being as efficient as possible.
Let’s say you offer ten service packages, but only four of them generate significant revenue. As a result, you are likely to lose money by continuing to sell low-paying services. Reducing underperforming services allows you to focus your marketing budget on the services that generate the most revenue.
An audit of your business’s operating expenses can also help you determine if ongoing expenses are necessary or if you can get the same service elsewhere at a lower cost.
Recessions are inevitable, but failures are not
Yes, recessions are scary. But with proactive planning for injecting new capital into your own business efforts, you can weather the storms to come.
By properly managing your cash flow and using the right methods to cut costs and diversify revenue (even if it’s temporary), you can attract new capital and move forward with confidence.
The post “7 Ways Entrepreneurs Can Invest New Capital in Their Business During a Recession” first appeared on Due.