If you are running a thriving business, you are in a happy situation. But, every business encounters speed bumps. Sooner or later, you are bound to hit rough patches when sales and revenues dip. Knowing how to negotiate periods of low revenues is the key to survival. It is an essential skill for all business owners.
Sales can dip due to many factors like fresh competition, change in market conditions, government policies and seasonal variations. Most of these factors are external and are beyond your control. Here are some tried and tested strategies that will help you tackle the situation. They work well for most businesses. The exact combination of strategies depends on your business and market conditions. You will know what is likely to work in your case.
1. Conserve Funds and Focus on Productivity
When profits are down, you should become a little more careful with expenses. It makes sense to minimize outflows.
When sales dip, production reduces and employees have smaller workloads. You can try to reduce salary costs by reassigning responsibilities. You can also consider switching full-time employees to part-time. If a person leaves, it’s an opportunity to cut costs. Instead of hiring, try to distribute the responsibilities among existing team members.
2. Keep an Eye on Inventories
When sales are low, you don’t need too much inventory because it tends to move slowly. Nonmoving inventories are a headache whether they are raw materials or finished goods. They lock up funds and increase storage costs. Items that deteriorate or expire with age like food or medical products can result in big losses. Some products like gadgets, software, and computer components can get outdated quickly. When sales are down, keep inventories to a minimum.
3. Have a Backup for Funds
Most businesses rely on some kind of short-term credit to finance their working capital. This gives the necessary buffer between cash inflows and outflows. However, it also makes sense to have a backup.
Having a second line of credit is a good idea. It makes things easier during periods of low profits. The lender may charge a small fee for the arrangement, but you are better off with that backup even if it’s rarely needed.
4. Speed Up Collections
Are your customers paying in time? Sound businesses always have a strategy in place to minimize receivables. This can make a huge difference when you hit a low patch.
Send invoices and account statements promptly and follow up to speed up collections. There are other benefits as well. Reducing accounts receivable reduces the risk of bad debts. It also keeps interest costs low and helps you identify slow-paying customers. You can encourage customers to pay quickly by offering small discounts for prompt payment.
5. Optimize Your Marketing Efforts
Tightening the marketing budget during a period of low sales is a tough decision. On one hand, you need more orders and on the other, marketing costs are eating into what little profits you have. The trick is to trim as much fat as possible and make every cent of your marketing budget count.
Evaluate your marketing activities. Are all of them contributing to sales? If an activity is not directly translating into significant sales, you can scale it down or suspend it until sales pick up. Once you have decided which activities to continue, make them more efficient. Keep monitoring them regularly and adjust to changing market conditions.
6. Expand Your Market
When sales are low, try to improve your reach. If you are currently targeting only local customers, consider expanding your market. You can try using more online marketing channels.
Websites are a lot cheaper to operate than physical outlets and you can reach a wider audience. Similarly, email marketing is cheaper and improves your reach compared to direct selling. If you make it easier for customers to use your services, you will expand your customer base besides increasing sales.
7. Improve Your Products and Services
When you hit a long period of low sales, the knee-jerk reaction is to reduce prices and hope for more orders. This usually doesn’t work because your competitors are probably doing the same thing or will follow suit.
A price war just reduces your profits making a bad situation worse. Your customers will also get used to lower prices. Instead, offer more value by improving your products and services. Check if you can improve the quality and provide better customer service. You can also try bundling products to provide more value without eroding profits.
8. Keep a Careful Watch on Your Business
When revenues go down, you want to keep a close eye on the day-to-day functioning of your business and the profitability of your product lines. There is no point in getting sales that do not result in profits. This is the right time to weed out such offerings.
Most businesses experience periods of low revenues. These periods are critical, especially for small businesses. If you are running a small business, you should know how to change gears and remain profitable during these lean patches. Knowing how to tackle them is important for long-term survival.
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