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With the economy crisis being in its fourth month now, I have gathered enough data in my DemoRecorder.com business to make some observations about how the crisis is visible in a business and based on these observations I have derived a basic strategy on how to survive the crisis.

This is an exceptionally long blog post, but I think that the importance of the topic warrants this:

Observations:

1. The Lead-capture rate remains completely unaffected by the crises.
2. Firesales work well. ( but don’t overdo them )
3. Payment morale is adversely affected by the crises, i.e. customers who are given payment terms such as 7 days net or 30 days net pay several weeks later. This also happened with customers who used to pay punctually in the past.

   My sample is rather small but I still think that it is significant. Also it seems to be a logical consequence of a credit crunch, which is the core effect on how the banking crisis affects the rest of the economy.

   Explanation: If it is hard to get credit from banks, then the temptation is high to get credit from your suppliers by paying them late… )

4. I have no statistically significant numbers on effects on total sales volume yet, but my guess is that sales will go down somehow when no compensative actions are taken.

Conclusions and Strategies:

A. List Building

If you can afford it, focus on building your list of prospects and nurture the relationship with them. This will give you a big head-start when the crisis is over. (and it will probably give you some sales during the crisis as well.)

Especially at the point in time where the current deflationary depression swings into a situation of money-oversupply and high inflation, you want to scoop as much of that money-oversupply as possible before inflation kicks in (and probably invest that money in inflation-protected assets…)
With a huge list of prospects and a good campaign at the right time, you may be able to do just that…

Also, in case that asking for physical adresses does not reduce the lead capture rate significantly, you should capture physical adresses, too.

Actually, due to stable lead capture rates and probably lower advertising costs due to competitors cutting down on advertising, your cost per lead will drop, so it is a good time to get as many leads as possible.

If you don’t know yet how to build your list, here are two important tips and resources:

1. You need a traffic source which works well for list building.

   According to my experience, traffic generated with Google Adwords works *very* well for lead generation. (It is the main traffic source for lead-generation for my website DemoRecorder.com)

   Since Google Adwords has some learning curve and since you can waste lots of money if you don’t know what you are doing, I highly suggest that you invest some time, energy and money into sharpening your skills with Google Adwords with the following resources which helped me get my business to a point where I make more with sales than I spend for advertising:

   • Perry Marshall’s 5 days to success free email course, plus a chance to purchase his great ebook which helped me to get the necessary knowledge for getting the marketing system of DemoRecorder.com working to a point where I make more in sales than I spend for marketing.
   • If you want to get deeply into Google Adwords and InternetMarketing, I suggest you join Perry Marshall’s Renaissance Club You will get a free copy of his $97 ebook if you join his club ( which includes a monthly physically shipped newsletter ).

   You will save much more money due to your education than you will spend on this education. ( return of investment is probably at least 10x of what you invest )

   For example, before I learned from Perry, I wasted a bit more than $5000 within three months… (Which is now the amount which I spend within about two years, and making much more in sales than I spend for advertising…
   sales volume is at least double my advertising spend…)

   So what’s a $97 investment or a $29.95/month investment compared to saving $5000 in three months? ( The amount you’ll save may be different but you get the idea… )

2. If you don’t have it already, you need an autoresponder service for managing your email list.

   I have made very good experiences with this autoresponder service. It is affordable, reliable and they have high class, competent and friendly support. (And aweber is not the only service which I have tried out… but it is the only one which I recommend and the only one which I actively use currently.)

B. Make *One* Firesale and/or apply other Turnaround Strategies

If your cash-reserves are too low right now, make *one* firesale, in a well-executed way. This requires a list of prospects.

For learning how to make a firesale and other strategies for making a turnaround, I suggest you go to Simpleology and purchase the business turnaround course. It is worth every cent and it contains detailed instructions on how to make a firesale. It helped me to make about US$1000 within a few days from my list of about 3500 prospects, and the ones who purchased the firesale-offer got a great deal which I will never offer like that. )

Don’t make multiple firesales because this will dilute your price point. (People will get spoiled and only purchase during firesales…)

You must also fix other reasons why your cash-reserves are too low. E.g. if you are wasting money somewhere, stop it.

C. Consequences of lower payment morale

1. Only spend money which you already have in your bank account. Due to uncertain payment morale, even from customers who previously always have payed punctually, you must not spend money which you don’t already have because
   • you don’t know when you will get that money and your bank may throttle your liquidity supply in the meantime which may force you to stop your business or at least stop some vital investments such as advertising.
   • you may never get the money from your customer… ( your customer may go out of business or they may cancel their order… )
2. Try to get customers to prepay ( e.g., online with their credit card ) instead of using purchase orders.

   Be sure to watch the effect of any such change on your sales-conversion rate because a customer who pays late is usually still better than a customer who does not purchase anything at all.

   Here’s a possible way on how to solve this if you can’t get them to pay by credit card:

   On DemoRecorder.com, I have always been using a hybrid approach, i.e., when I receive a purchase order, I issue a temporary license for two months, and the invoice has a net 30 days payment term. I only issue permanent licenses after the money has arrived.

   This is kind of a combination of a 30 days net payment term with a prepay term and it is usually well-received by customers because they still get their 30 days net payment term and they can start working immediately on issueing the purchase order.

   But it motivates them to pay no later than 3 weeks late… because that’s necessary in order to get the permanent license before the temporary license expires.

   So, be creative. If none of two alternatives works, there is probably a third alternative which does work. You just have to see it.

D. Watch your sales-conversion rates and optimize them

Closely watch your sales-conversion rates and work hard to optimize your sales-conversion rates.

During the next months I will try several ways of boosting sales-conversion rates.

I will tell you which ones work and which ones don’t work.

E. Keep Reliable Income Sources, even if you don’t like them

If you have any current income sources which give you money reliably, keep them, even if you don’t like them, such as a job or a business which you don’t like to be engaged in anymore.

Why?

It’s Simple: Having a stable income is worth a lot during an economic crisis and you may use a part of that income for aggressively investing in things like building your lists of prospects, or sharpening your marketing skills, etc So, that you have a head start when the crisis is over.

There are of course exceptions to this, e.g., if you have multiple reliable income sources you may concentrate your time and energy on the ones which work best and stop or reduce your investment in energy and time in the others…

F. Treat your customers well and be consistently reliable

Be nice to your customers and treat them with respect and show them that you are consistently reliable. This may not pay off immediately but it will pay off in the long run.
(this is also true if there is no crises, BTW)
(treating your customers well will also cause you to feel better, independently on the effects on your income…)

Especially during an economic crisis, customers become more selective where to spend their money.

If they know that they can trust you, they are more likely to spend their money with you because they know that you will help them in case of problems with your product or service, so the value of their investment in your product or service is secured.

Especially in a business-to-business environment there will be a lot of fear by decision makers or decision influencers to be punished for having made an investment which later turns out to be worthless.

And remember: You always sell to individual people, not to institutions.

So even if the corporate entity of your customer has enough funds to spend, the decision-maker which you are dealing with may have personal reasons for being very selective. Fear of losing his/her job due to bad purchasing decisions may be one of those reasons.

Actually, these fears may be well-founded because:

• Their boss may be more diligent in watching expenses.
• It may be harder for your decision-maker to get a job when he/she gets fired because in this crisis-climate, hiring by potential employers is probably reduced considerably.
• Their boss may need to reduce his/her workforce because of lower revenue, and therefore will look for some selection criteria on who to keep and who to fire. If somebody makes bad purchasing decisions, this may be just the tipping point between keeping the job or being fired.

So, you have to take these potential fears of each your contact persons seriously and you have to do everything such that his/her decision to purchase from you turns out to be a success story for him/her. (This is a good business practice anyways, but in today’s climate, it is even more important.)

And you have to communicate that before, of course.

Therefore, it is also vital to have good guarantees and services included with your products, such as I do for DemoRecorder, which you can take as an example:

Click here to show the Services and Guarantees of DemoRecorder

G. Improve your Products and Services

If your products and/or services have areas which you know should be improved, do it!

As I wrote above, your customers become more selective on where to spend their money or the money of their employer.

If you don’t know what to improve, then ask your customers… If you ask them in the right way, they will happily tell you their wishes…

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I hope these tips help you to master the current economic crisis.

Stay tuned and look for my next posts…

Best wishes to you,

Chris

P.S.: You are welcome to post your comments below.

This entry was posted on Saturday, January 3rd, 2009 at 1:01 am and is filed under Business. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.