Every business goes through ups and downs, but an economic slowdown or seasonal change can hit especially hard. The good news? There are strategies you can employ to weather those hard times and come out more resourceful.
1. Trim Variable Costs First: Variable costs are expenses that change based on your output, like materials, packaging, shipping, and hourly wages. These aren’t set in stone like rent or insurance and are easier to adjust. For example, you might reduce production amount, search for better priced suppliers, or switch to more cost-effective packaging.
Assess which variable cost you value the least and start to reduce costs in that category.
Formula to calculate total variable cost:
Total Variable Cost (TVC) = Variable Cost per Unit × Quantity Produced
By lowering either, the cost per unit or the volume you produce, you can immediately reduce spending.
2. Reevaluate Your Product Mix: Now is a good time to focus on your best-performing products (the items with the highest profit margin). Focus on producing products your consumers will buy no matter the economic times. Consider pausing or discontinuing products that are resource-heavy and low-performing.
Further, consider developing a lower-cost version of some of your products. This strategy is frequently employed by fast-food restaurants when they create their value menu.
3. Strengthen Customer Relationships: When budgets are tight, customer relationships are more important than ever. Focus on providing excellent customer service, communicating transparently, or creating a loyalty program. Retaining existing customers is cheaper than acquiring new ones.
4. Keep Marketing: The first thing many businesses cut is marketing—but if customers don’t know you exist, how can they buy from you? Instead of cutting marketing altogether, invest in low-cost efforts like social media or field marketing (go out and talk to people about your business!). These options can keep your brand visible without draining your wallet.
5. Local Partnerships: Partnering with another local business can help both of you reach new customers as you engage with each other’s audiences. This could be as simple as cross-promotion on social media, or more involved by bundling services or co-sharing space.
Hard times force you to evaluate what is most important to your business. By focusing on essential products, cutting variable costs, and exploring new partnerships, your business can maintain stability and build flexibility for the future.
Connect with Community Futures Big Country (403) 823-7703 for support during tough economic times—or anytime you need help growing your business!
