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5 Ways to Improve Business During an Economic Downturn

Business Strategy
September 22, 2023
Rachel Ludwig

It’s no secret that our economy has struggled over the past year or so. High inflation, interest rates, and cost of living are contributing to consumers tightening their belts – leaving many business owners looking to turn things around

Companies have to take certain measures to remain competitive in the midst of challenging economic conditions. These strategies vary based on what’s already working and not working for your business.

Sebastian-Justus Schmidt, Chief Executive Officer at Enapter captures the goal for bear market business leaders perfectly: 

“If I, as a leader, want to make a difference here, I do it with simple solutions that also have unmistakable cost advantages”

To help you bridge the gap between desired growth and current sustainability, here are 5 ways to improve your business during a challenging macroeconomic environment.

1.  Cost optimization

Instead of simply cutting costs, you need to focus on cost optimization – a discipline where you keep costs down but still maximize business value. 

While many businesses feel pressure to conduct layoffs during a tightening economy, there is evidence that shows this may not be effective, especially in the long run. A recent report from McKinsey found focusing on “developing people and managing them well gives a select group of companies a long-term performance edge.”

If you’re not facing extreme pressure to conduct mass layoffs, consider finding creative solutions (like AI) to automate manual, low-level tasks and maximize employee output. 

Once you conduct a thorough cost analysis, consider if these other cost optimization options work for your business:

  • Renegotiate contracts with suppliers and vendors
  • Implement a salary/bonus freeze
  • Use modern technology 
  • Try free/low-cost marketing strategies
  • Consider moving to remote-only if possible

2. Cash flow management

Cash flow has a high likelihood of slowing down in challenging times. When cash flow slows down, businesses can’t easily pay for essential operating expenses like employee salaries or bills. 

To improve cash flow, try these options: 

  • Closely monitor spending. The best way to manage cash flow during a downturn is to be ruthless about where your money is going. Scrutinize every penny and determine if there’s a more affordable option. 
  • Delay non-essential spending. If something isn’t absolutely necessary for business operations, consider waiting to spend money on it. 
  • Optimize invoicing and collections. Follow up and send out late payment notices to any customers, partners, vendors, etc. who owe you money. Now is the time to collect on anything you’re owed shore up cash flow. 

3. Proactive diversification

Is there a market you aren’t serving but your product/service could align with? Perhaps you’re only operating in certain states and adding a new one would require very little capital. Or perhaps the potential revenue outweighs the cost of serving an additional market.

When you sit back with your team and think creatively about ways to get your product/service in the hands of more people, there are often a number of solutions that will actually work. 

Types of business diversification include:

  • Product Diversification. A company that primarily sells smartphones might expand its product line to include smartwatches, headphones, and other wearable technology.
  • Market Diversification. A company that sells organic foods within its home country might expand into international markets by exporting its products to other countries.
  • Industry Diversification. A company known for producing electric vehicles might diversify into the renewable energy industry by developing and manufacturing solar panels and wind turbines.
  • Service Diversification. A marketing agency that specializes in digital marketing services might diversify by adding public relations and event management services to its offerings.
  • Mergers & Acquisitions. Company A, a beverage manufacturer, diversifies by acquiring Company B, a snack food manufacturer, allowing both companies to offer a broader range of products.
  • Joint Ventures. Company X, a pharmaceutical company, forms a joint venture with Company Y, a biotechnology firm, to collaboratively research and develop new treatments for rare diseases.
  • Diversifying into new geographic regions. A restaurant chain that currently operates only in one city expands its operations by opening new locations in different cities and regions.

 

4. Customer focus

Deeply understanding your customers during an economic downturn will help you stand out amongst competitors and win their business. 

For example, many consumers are struggling with heightened inflation and high costs of everyday goods. This is shrinking people’s disposable income. Businesses who can find a way to build lower cost or higher perceived value into their goods/services will be at an advantage during this downturn. 

Other ways to enhance customer relationships include: 

  • Create a loyalty program
  • Emphasize personal touches both in-person and online
  • Remove any friction around the customer experience
  • Communicate effectively

5. Adopt digital payments

Digital payments are revolutionizing the way customers pay. Companies like Uber are onboarding one-click payment options because it makes payment substantially easier for customers. 

Removing friction at the point of checkout is crucial during an economic downturn. It more easily converts customers so businesses can make more money. 

Other benefits of digital payments include: 

  • Increased revenue. Customers who use digital payments spend 25% more per order, complete online orders 30% more often, and return to shop online 37% more often.
  • Enhanced cash flow. Digital ACH payments involve electronic fund transfers that are settled faster than many traditional payment methods. 
  • Reduced cost. Replacing cash with digital payments is an easy way to save anywhere from $5 to $15 per $100 sale. 
  • Improve customer experience. Digital payments are the most convenient way for customers to pay. They can be done in seconds and the transfer of funds is instant. This holds weight for shoppers who will be delighted to pay digitally. 

Takeaways for business owners

  • If your business is struggling, focus on regaining your footing before seeking additional revenue earning opportunities. 
  • Layoffs are not always the answer to save your business money. 
  • Optimize your invoicing strategy to ensure all unpaid invoices are being sent immediately. 
  • Prioritize your customers as their evolving needs during a challenging economic environment. 
  • Include digital payments in your strategy to survive and thrive. 

Add Aeropay digital payments to your turnaround strategy 

As you look for effective ways to improve your business, keep in mind that retailers using Aeropay digital payments experience:

  • 25% higher customer spend 
  • 30% increase in completed online orders
  • 37% increase in online customers returning

The simplicity, security, and efficiency of Aeropay removes the need for cash or cards at your business – so you can focus on your business. 

Schedule a 15 minute demo to see our full payments solution and put bank-to-bank transfers to work for your business.

Author

Rachel Ludwig

Marketing & PR Lead
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