Recession? Count me out. . .

When there’s a cold going around I decide I’m not going to catch it. I know that sounds ridiculous, but it’s worked for me for quite a few years now. And I regard talk of a recession as a bit like an unpleasant virus because it can be contagious.

Reports in the media about the credit crunch, escalating bills and reduced spending give a picture of general doom and despondency. Are you being infected?

Now, don’t get me wrong I do appreciate many people, both consumers and businesses, are finding things more difficult. I also believe we, as business owners, have a decision to make; accept all the negative reports, take part in the recession and accept the dire consequences it can lead to.

Or, decide not to take part. Decide to take action that makes us - and our business - stronger.

Is it possible to come out of a recession stronger?

In my experience, yes. I was talking with a close friend (I’m godmother to his son) and business entrepreneur. And we realised that we had both come out of previous recessions stronger than we might have expected to. In fact, my original computer training business - back in 1990 - was born out of a recession when I was made redundant from my position of General Manager with a local computer supplier.

Why had we survived so well? Because we both avoided…

The Biggest Mistake Businesses Often Make in a Recession

Stop actively looking for business from existing and new customers.

When I say actively I’m talking, as you’ve probably guessed, about marketing. Being seen as a vibrant, open-for-business company is vital to your survival, let alone your growth and success when there is an economic downturn.

Yet as soon as business is a bit slow and the order books start to dwindle, for many the thought of investing in advertising and marketing is abhorrent to them. The mentality is “We can’t afford to spend on advertising and marketing!”

Why is this when the reality is “Can they afford NOT to spend?”

Lack of Knowledge Can Lead to Your Downfall

I believe the reasons why some business people think this way is lack of knowledge in two specific areas…

They don’t know how effective their advertising and marketing is.
They don’t know the true value of each prospect they find who turns into a loyal customer.

Measuring your marketing spend against the value of the sales it attracts is the only way you can be sure of having control of your business at any time. When you’ve got this control you can choose not to take part in a recession, if it comes.

Back to Basics

Over the next few posts I’m going to suggest a few different marketing approaches for you to consider in your business.

Before I do that let me remind you of a few basics, linked to the two points above. (Sometimes it’s good to be reminded, don’t you think?)

How to Measure The Effectiveness of Your Marketing

There’s only one way to be sure your marketing spend - whether that’s time or money - is a good investment… only use direct response marketing in your letters, adverts, web pages, newsletters and flyers. Gear them up to elicit a direct action from your target audience. And monitor the responses you get.

Here’s an example of what I mean.

You decide to place an advertisement in a local publication targeted at your specific market.

You create a direct response advert and include a unique code so you can measure the response to that specific advert, in that specific publication in that specific issue.

The advert costs you £500.

The publisher tells you it has a readership of 25,000 - and says “It’s only costing you 2p to reach each reader!” That would be a fantastic investment if all those readers are real prospects and there is a high chance they will respond. You wish!

The only figure that is relevant to you is the actual number of people who take action and respond to your advert.

Your advert goes out and you get 10 enquiries. You now know it cost you £50 to get each enquiry. Let’s say you convert half into sales. You have 5 new customers, each cost you £100 to acquire. (The price of your advert divided by the total number of new customers).

The next point is the one that many business base their future marketing decisions on. And it’s where they often go wrong.

Question: “Is running this advert worthwhile?”

On face value you could decide “No!” if the immediate sale - the first sale - does not deliver a high enough profit to cover the advertising cost. The real question should be “What is the profit value of all the subsequent sales I’ll make to this new customer?”

If you are going to blossom in a recession you must have a strong, effective, follow-up system; sometimes called the back-end. Once your new customer buys, especially if you’ve delivered a good product or service, they are more open to considering other products or services you can deliver. Add these onto the initial sale and you could find that seemingly expensive advert is not such a drain on your resources after all!

Before you start any advertising or marketing campaign you need to know two things:

The average profit value of each of your customer’s transactions
The number of purchases they are likely to make before they stop (if they ever do) buying from you.

Multiply these two figures and you have a fair idea of the true worth of your new customer (sometimes called lifetime value).

So, going on from my example…

let’s be conservative here and say your first sale profit value is only £80. That means you are making a loss of £20 on each new sale. At first glance that looks as though this is not a worthwhile advert to run again. And, as I said, that’s what many business owners base their decision on.

But if you’ve got your strong follow-up in place and you know that, on average, your customer’s subsequent purchases deliver a £100 profit each and they normally buy another 6 times over a period of two years - then your total potential profit is £680. Take away the original cost to acquire the customer (£100) and that gives you an overall expected average profit of £580 per customer.

Now placing that advert makes more long-term economic sense, doesn’t it?