First, is a recession actually going to happen?
It seems that recently all anyone can talk about is an impending recession. The fact of the matter is that while no one can predict the market exactly, there are indicators that are warning signs of a recession. One of these indicators is high inflation.
In May of 2022, inflation hit 8.6%, the highest it has been in 40 years. A recession often follows inflation because of the way the government responds to it: raising interest rates. The FED has since started to hike interest rates to slow borrowing, which has led experts to fear a recession.
Another indicator of impending recession is the presence of a weak stock market. In May of 2022, the US stock market entered a bear market, which means stocks dropped 20% from their peak. This shows overall fear in the market which reflects fears about inflation, the global economy, and ultimately an oncoming recession.
Declining GDP, negative yield curves, and a tight labor market are also evidence of an impending recession. All of these factors considered, combined with the state of the world, COVID-19, political instability, and even war, it's safe to say you should start to prepare your business for a recession.
How a recession could impact your business
While the word recession can be scary, with proper action, it can be a great opportunity for you and your business. This is especially true for eCommerce businesses. For example, whenever COVID 19 started, eCommerce absolutely thrived. However, you must be prepared to act upon the changes that are coming.
A few key things happen during a recession that will undoubtedly impact eCommerce. First, oftentimes consumers spend less money than usual. This is due to their own financial struggles or fear of the market. Secondly, other businesses in your market will compete very hard to maintain their sales. Finally, as we saw during Covid, be prepared for supply chain issues that can impact how you fulfill your orders. Those who recognize these and take advantage of recessions not only survive them but often come out better than those who stopped selling.
Here are some tips on how to prepare your eCommerce business and thrive in a recession.
- Keep Spending Low
Recessions are not the time to start shelling out cash or make huge moves for your business. You need to keep your spending in check. The goal of this is to build enough cash reserves to keep your business afloat if you stop receiving the same amount of sales as you did before the recession. A good rule of thumb is to build 3-6 months of cash reserves. Evaluate every capital expenditure your business makes and ensure that it is a truly good decision/investment. Additionally, keep your operating costs as low as possible, as high costs can make it very challenging to build your cash. Keep in mind the goal is not to stop spending completely, but to ensure that you are making smart decisions. Once you ensure you have the necessary cash reserves, you can start to think about making moves and investments that will spit you out of the recession in a better place than you were coming into it.
- Utilize Free Marketing
One way you can keep costs low while still growing your business is to utilize free marketing. A well executed content strategy can provide results similar to paid advertising. Boost your natural social presence by posting written content, videos, or both. You can even go live with your followers to interact with them. Focus on the platforms you have the most engagement on, and look for your competitors. If you don't see them posting anywhere on a social media site, you probably shouldn't either. Having engaging content on your website will improve your traffic, resulting in more “free” marketing and customers. This is perfect to utilize during a recession to draw back marketing costs.
- Focus on your Best Sellers, Maybe
The beginning of a recession is not necessarily the best time to expand your product list. Don't try to boil the ocean when cash is on the line. Focusing on the crown jewels of your business can be strategic in saving money. Temporarily pausing your less popular items and ramping up your best sellers can ensure you get the best return on your investment.
However, one could argue the complete opposite of this if they are willing to be a little risky. If many of your competitors are focusing on the same particular item, you can go off the beat and path and target the items they are neglecting. It's not worth blowing through all your available cash on one product that is highly contested.
- Your Customers are Your Best Friends
Your customers are everything, treat them like it! You should try to increase your value to every customer even during a recession. Take a look at metrics such as CLV (how much money each customer will spend at your business) and how often customers are repurchasing from you. You can increase the value to your customers in many ways. Promotions, free shipping, discounts, and even points programs are great ways to make your customer feel they are getting a deal by using you over a competitor. You can also recommend related products at checkout which may boost the number of sales you receive. Most importantly treat your customers like humans. Send them thank you emails after purchasing and continue to offer them deals and other popular products. While some customers will be unable to shop more at your store during an economic downturn, treating your customers like the asset they are can boost your odds to make sales during this time.
- Look For Opportunities
While much of this post has described how to scale back and save money during a recession, we recommended being ready to jump on opportunities if they arise. A recession is a time to be cautious but also a time for opportunity for smart business owners. Watch your competition and fill in their pitfalls. For example, if your competitors stop advertising as much, ramp yours up to push them out of the market. Improve the efficiency of your business by automating tasks. Evaluate opportunities to gain new market share when your competitors fail. There are many smart moves to make in a recession, but they are good decisions if you have adequately saved to recession-proof your business. Save first, then expand.
Remember, a recession won't last forever. Economic downturns can be tough, but the steps above can help you prepare and even thrive in discomfort. Receiving capital can protect your personal finances while still giving your business the cash it needs during tough times. For example, Onramp can help you go after those unique opportunities and investments for the long-term success of your business. Onramp is there for you every step of the way, recession or not.