Chapter 20

Ten (Or So) Ways to Survive Sales Downturns

In This Chapter

Controlling costs in a local, sectorwide, or national slump

Adding diversity to your customer base and product offerings

Making the most of product turnover while cutting your losses

The goal of marketing is steady growth, but sometimes things don’t happen the way you plan for them to. Whenever you experience a downturn in sales and your profits are squeezed, you need to respond promptly. Continue marketing, switching from high-cost and fixed-cost methods to low-cost and variable-cost methods to make sure you survive the downturn intact and come out in a strong position on the other side. This chapter presents ten (or so) tips to help you navigate the rough waters of a sales downturn.

Minimize Fixed Costs

Fixed costs are those costs that you incur — and owe — regardless of how much you sell. For example, if you contract to place print ads in the next six monthly issues of an industry publication, that’s a fixed cost you’re stuck paying regardless of whether business is booming or declining. 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. Also, switch to marketing methods that align costs with actual results. For example, pay-per-click search engine advertising links costs to results (see Chapter 10).

A sales commission also varies with results, so a downturn is a good time to use commission-based sales reps. But lay off sales and service personnel who’re on fixed hourly or weekly salaries because their productivity will go down while their pay won’t. Salaries are one of the largest fixed costs in most organizations — keep a tight lid on ’em!

Broaden Your Customer Base

Having a diverse range of customers spreads risk and helps keep your growth steadier and more predictable. Why? Because inevitably some customers are buying while others aren’t. A business-to-business marketer who sells solely to one industry is vulnerable to that industry’s cycles. Similarly, a consumer or retail business that specializes in one region or one type of customer is more vulnerable to downturns 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 that you’re trying to sell to customers you don’t know anything about). Chapter 2 reviews strategies that may help you broaden your customer base.

Diversify Your Product Line

If you want to protect your product line from sudden shifts in demand or new competition, embrace diversity. 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 of your eggs in one basket.

Approach Huge Contracts with Caution

Securing a big contract to supply products to a giant buyer (think companies such as Wal-Mart, General Motors, and the like) may seem like you’ve finally “made it” into the big time, but you need to tread very 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 if too much of your sales are invested in those buyers.

Minimize Inventories

If you sell anything tangible (as opposed to a service), you inevitably have to tie up some of your money in inventory. How much money is the question. Often smaller businesses put a bigger share of their money into inventory than large businesses do because they’re eager to take advantage of quantity discounts in purchasing or production. However, 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’ll be 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.

Maximize Product Turnover

Rapid sales are the secret to high profits in marketing. Just think about a large grocery store. Somehow all that real estate and all those employees are funded by the 10 or 20 cents of profit on a half-gallon container of milk. The trick is that grocery stores sell a lot of containers of milk, bottles of soda, and loaves of bread. You don’t need a big profit margin if you make a sale every few minutes.

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.

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.

Eliminate Loss Centers

Almost every business has some activities or operations that make more of a profit than others. On the flip side, every business also has loss centers (product lines, customers, or activities that don’t make a profit). The customers that demand discounts and require lots of your time and service, as well as any products that have lower-than-average profit margins for you, are examples of typical loss centers. Take a look at your entire range of activities and target your loss centers for elimination or reformation.

In tough times, shrinking your operation by eliminating the least profitable areas and focusing on the most profitable ones makes perfect sense. You may be smaller, but you’ll be more profitable and therefore better able to grow and prosper in the future.

To apply the principle of eliminating loss centers to 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 comes from your Web site. Web orders are far less expensive to produce — in other words, they’re more profitable — so consider cutting the sales force back to a bare minimum and boosting your Web-related spending.

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. For example, if you’re buying local television spot ads, try replacing them with ad time on on-demand movies over the Web and on cable television, where the costs are probably lower. Similarly, if you’re mailing an expensive color catalog, experiment with a postcard to your mailing list that tells people to check out the new offerings in your online catalog. Chapters 8 through 11 cover these and other low-cost options in detail.