How to recession proof your business for 2023
Whether businesses are already feeling the burn of high prices or simply trying to prepare for the worst, keeping a close watch on economic activity is never a bad idea.
Becoming a recession-proof business isn’t, either.
Despite persistent inflation and high-interest rates, the United States is still not in a recession, at least per economists’ dictionary definition. Technically speaking, a recession period describes at least two consecutive quarters of economic downturn.1
However, financial experts are still predicting an eventual recession, so it’s time for businesses to center a critical task: becoming recession-proof.2
Recession-proof businesses find creative ways to soften the blow of economic downturn. Today’s brands can shield themselves by laser-focusing on finances, creating (and touting) additional value, establishing new partnerships and building contingency strategies.
Zoom in on your finances
Any guide to recession proofing in 2023 wouldn’t be complete without extensive notes on how to prepare financially. In today’s economic climate, brands that aren’t already hyper-focused on their bottom lines need to be.
Let’s break down three critical financial strategies that can help brands outlast market challenges.
Tighten the purse strings
During an economic recession, every cent counts—as of early 2023, prices are high and lending is already expensive. Financial experts recommend that business owners do the following to cut their spending:3
- Self-audit costs – Perhaps barring very small brands, business owners don’t always have a clear picture of what they’re spending money on. Examine and analyze credit card statements and accounts payable (AP) to identify cost-saving opportunities.
- Assess supply chain and inventory costs – Brand leaders should make efforts to negotiate with their suppliers in an effort to save. But they should also consider the potential benefits of buying in bulk—a tactic that can cut down on unit pricing and create a safety net for unforeseen lead time extensions.
- Invest in productivity – It might sound counterintuitive to discuss investment in a section about cost savings, but making prudent purchases that advance automation or digitization opportunities could cut down on spending in the long run.
Focus on ROI
A recent blog post about recession proofing marketing efforts breaks down how marketing teams can stay effective during an economic recession. One critical section about focusing on return on investment (ROI) applies to any brand’s in-house costs.
During a recession period, businesses must determine:
- Which projects were completed in the last quarter.
- How much those projects cost.
- How much revenue they generated.
Any projects that didn’t produce a return (or as large a return as expected) should be reevaluated. For endeavors like these, businesses should explore:
- Whether or not they can live without these internal processes.
- How to scale back these efforts to reduce costs.
- Potential changes that could increase return.
Paring down low-return projects and investing in efforts that produce results accomplishes two important recession proofing tasks: cutting spending and increasing revenue.
Weave a safety net
While businesses may have room to fail (e.g., survive despite an unprofitable quarter) during tough economic times, recession proof businesses find a way to maintain this safety net despite an unpredictable market.
Brands that don’t have a financial safety net yet can still build one:4
- Start saving – Profits brands might usually re-invest in a business should (at least partially) land in the savings account ahead of a looming recession.
- Liquify while prices are high – If you have a non-liquid asset you can do without, convert that equity into cash while prices are high. An unused warehouse space, for instance, could be sold ahead of a possible real estate downturn.
- Pay off expensive debts first – Paying off high-interest startup loans or credit card balances should be the top priority for brands facing a looming recession. Every cent counts—getting ahead on debt payments can cut your interest costs in the long run.
- Get approved for a line of credit – Perhaps the most obvious safety net, a business line of credit can be a lifesaver when cash flow stalls.
Become invaluable to customers
When businesses become indispensable to their clients before a recession, those clients are less likely to cut ties when money gets tight. In order to become indespensible to their customers, today’s brands should hone in on value.
Ask clients what they’re looking for
Value doesn’t just describe a product’s worth in dollars—it’s also a metric customers use to explain how well (or how poorly) a product resolves their pain points or helps them accomplish a task.5
Clients might consider a brand’s product more valuable if:
- It offers more bang for their buck.
- It uniquely facilitates a certain outcome.
- It provides an unconventional solution to a common problem.
But it can be hard to estimate how a client might perceive changes (even value improvements) to a product. In an effort to increase their value to customers, businesses should reach out to their most important resource: their clients.
Clients are uniquely positioned to provide value-related feedback about a product or service. In many cases, they’re also willing to give feedback (especially if it will result in an improvement).
Use marketing to describe your product’s value
Whether a recession proof business teams up with a growth marketing firm or handles their outreach efforts in-house, it can leverage any value improvements made to their products or services to attract new customers.
What might this look like? Businesses should consider emphasizing:
- Any new features or included services added to their existing offerings.
- How the dollar value of their product compares to their competitors.
- Why their existing clients find value in their offers.
As businesses maintain current revenue by increasing the value of their products or services, they can also attract new customers by highlighting those value additions. Keeping current clients happy and building new customer relationships are both critical tasks for businesses to tackle before (and during) tough economic times.
Ahead of a recession, embrace the “safety in numbers” approach. By building new strategic (and profitable) partnerships with non-competitors, businesses can bolster their existing revenue and create fresh earning opportunities.
That said, brands should opt for incrementally scaling their retail partnerships—instead of immediately investing everything they have into a new joint venture—in an effort to manage risk during economic uncertainty.
Let’s examine a hypothetical.
If a fitness chain decided to partner with a nearby juice bar in an effort to retain clients (or attract new ones), both parties might have massive, potentially profitable and mutually beneficial business ideas that could create growth. But in an economic climate where cost savings and smart investments are paramount, it may simply be too risky to start with the most intensive, costly partnership venture.
In times of economic uncertainty, the fitness chain might start by constructing a dedicated juice counter inside its establishment, for instance. In a recession (or before one begins), this might be a more reasonable initiative to spearhead after the success of earlier, smaller joint efforts. A more incremental, low-investment starting point for this new alliance might look like:
- Offering fitness chain customers a coupon for the juice bar and vice versa.
- Teaming up for a joint social media campaign.
- Hosting a tasting-and-gym event to promote both brands.
None of the solutions above require bank-breaking investments (or risk significant losses if the brands’ first collaborative effort doesn’t take). Opting for scaled partnership activities can reduce both brands’ financial risks—an important element of any recession proofing strategy.
Create a contingency plan
While creative ideas for cutting costs, client roster maintenance and exciting new partnerships all have the potential to benefit businesses when a recession is on the horizon, contingency plans are some of the most powerful tools businesses have in the face of uncertainty.
For brands that don’t have recession contingency plans yet, here are some strategic tips:
- Make plans A through C – Even in prosperous phases, the economy can be unpredictable—that’s why businesses should cover as many bases as they can as they plan for the worst. Create strategies for various recession scenarios, detailing the decisions you might make in shallow or deep and short-term or long-term recessions.
- Be realistic – Budding brands with limited resources simply might not survive a drastic economic downturn. While it certainly won’t be fun, businesses should map out what a potential closure might look like.
- Be transparent – When a brand’s leadership team is worried about the state of the economy, its workforce likely is, too. Keeping the entire team in the loop on recession-era decision-making can maintain confidence and ease worry.
In the face of a potential recession, businesses should heed a familiar adage: “Hope for the best, but prepare for the worst.”
Drive profitable growth in 2023
With a potential recession on the horizon, smart investments, creative solutions and careful planning are more important than ever.
Brands that have worked with our digital marketing agency for more than six months have grown their revenues by an average of 71% year-to-year (more than twice the standard market rate). In the face of uncertain predictions, Power Digital is helping brands commit to growth in 2023—come what may.
Drop us a line to start recession proofing your business today.
- NerdWallet. Are We in a Recession?. https://www.nerdwallet.com/article/finance/are-we-in-a-recession
- CNBC. Why Everyone Thinks a Recession is Coming in 2023. https://www.cnbc.com/2022/12/23/why-everyone-thinks-a-recession-is-coming-in-2023.html
- CNBC. How to Conserve Cash, Cut Spending As Business Owner During a Recession. https://www.cnbc.com/2022/07/28/when-recession-hits-these-are-the-cutbacks-a-business-needs-to-make.html
- Charles Schwab. Five Steps to Recession-Proof Your Finances. https://www.schwab.com/learn/story/five-steps-to-recession-proof-your-finances
- Qualtrics. Customer Value: Definition, Measurement, and Strategy. https://www.qualtrics.com/uk/experience-management/customer/customer-value/