Whether we like it or not, a recession is brewing. You may wish you could bury your head in the sand and wait for it to pass, but the best thing you can do as an agency owner is to take deliberate action and create a plan to protect your business now. This way even if you can’t completely shelter your agency from the impact of a recession, you can stay profitable and avoid a total wipe-out.
How recession impacts agencies
There is such a thing as a recession-proof industry. Services that people depend on — like in the healthcare, government, and education sectors — can generally weather strong economic headwinds. Unfortunately, agencies usually don't fare as well. They’re more likely to experience reduced cash flows due to a lack of demand from clients who are cutting back.
Here are some of the ways agencies are impacted by a recession:
Clients might scale back agency services
One of the easiest ways to boost profitability is to reduce costs. Any expenses deemed unnecessary will be on the chopping block and this includes services that could be pulled in-house as opposed to outsourced to an agency. If your agency relies heavily on certain clients or projects to stay profitable month-over-month, you should be concerned if they start to cut back.
Clients could defer projects or cancel contracts
When clients are facing difficult and uncertain times they often back out of projects or put their contacts with agencies on hold, immediately reducing cash flow to your business. This creates a tricky situation for agency workers and their managers who have to quickly reassess workloads and budgets
Agencies might need to lay off employees
Layoffs are one of the worst side effects of a recession. But agency owners in a bind may see a reduction in staff as the only way to keep the business afloat. Not only is this process difficult and damaging for those being let go, but it also means that agencies are understaffed or underqualified to be carrying out the same work they once did.
Businesses tend to spend less on marketing
While marketing and advertising can’t completely stop during a downturn, budgets will most likely get cut back and agencies will be among the first to feel this wallet-tightening first-hand If you own or work in a marketing agency, this might be one of your worries as we think about dealing with a potential recession.
Start shoring up your business now
During times of uncertainty, being proactive is key. Here are 6 steps your agency can take to keep calm and increase your profitability
1. Evaluate your agency's efficiency
The best place to start when preparing for hard times is by looking at your efficiency. Many agencies go straight to making cuts, but sometimes the most effective thing to do is to take a closer look at tightening up your current processes and systems.
Track your team's time: Effective time tracking is critical for any agency that wants to be profitable but it particularly applies during unpredictable times. If you're not already accurately tracking time at your agency, doing so will give you insight into where time is being spent and how. Tracking billable time will deepen your understanding of the profitability of each project, which will allow you to prioritize high-value work across all your clients.
Automate where you can: Are there ways that you can automate your processes so you can shift your time and energy towards more important tasks? Think about processes that are repetitive and mundane, such as invoicing or reporting. Now imagine how much more time you’ll have for improving client satisfaction and lead gen. Teamwork Automation’s allow you to reduce manual work and deliver work more efficiently.
2. Review your pricing
Your agency's profitability doesn't need to plummet during a recession. You might be thinking, “If clients have less money to spend, we’ll need to drop our prices.” But this isn't always the case. You don’t want to de-value your services by dropping prices too low and you don’t want to turn customers off by increasing your prices too quickly. The tricky part is striking the right balance between charging enough so your agency is profitable while avoiding churn.
Research your clients and industry: Before making changes to your pricing, you need to understand what your clients are willing to pay. If you know that your clients are struggling and there are other agencies offering cheaper deals, then it might not be the best idea to increase your pricing.
Prove your value: If you do decide to change your pricing plans, be sure to clearly show your clients the value you are bringing them. When your clients feel the ROI is solid, they will be much more likely to stick with you.
3. Get selective about who you work with
Not every client will be the right fit for your agency, and that’s ok! Getting selective about the clients you work with isn't something agencies should only do during a recession, it's something to think about all the time
By taking a more thoughtful approach to taking on new clients, you can ensure a better fit for both sides. It's also a lot easier to rule out any clients that might not respect or value your team.
Work with clients from different industries: One way that agencies can help themselves during a recession is by working with clients from different industries. By doing this, if one industry is badly hit by the recession it won't completely debilitate your agency's cash flow.
Here are some of the industries that usually stay safe during tough times: education, healthcare, technology, ton-profit organizations, and food & beverage.
4. Diversify your revenue streams
When an economic downturn is on the horizon, it’s important for agencies to think about diversifying their revenue streams, too. Offering your clients a broad range of services can increase your stickiness, making it harder for them to walk away, and the extra cash inflow won’t hurt either.
Expand your offerings: Take a look at what you already offer. Are there areas that your agency could easily expand into? Perhaps you have employees that are already qualified and experienced in SEO and you have had clients interested too. Adding services is always a risk but the pay-off could be huge.
Never lose sight of your core services: Although it's important to find new sources of revenue during a recession, you don’t want to suffer from shiny object syndrome. Stay true to your values and remember what your agency does best.
5. Concentrate on customer retention
Attracting new clients is one way to pad your profitability during difficult economic periods, Another option is to spend more time nurturing your current customers.
Show your clients that you value them: Can you offer your clients incentives that let them know you value them as clients? Make sure you’re showing them love by meeting with them regularly and providing helpful resources and thoughtful swag when appropriate.
Build trust with your clients: When you've put in the effort to build a strong relationship with your clients, the lifetime value of your clients is more likely to increase. A great way to gain their trust is by communicating openly and being transparent. Remember: You’re in it together.
6. Look at where you can reduce overhead
This might be an obvious one but when money gets tight at your agency, take a look at your budget and see where you can cut back on non-essential expenses to help your agency be more profitable.
Assess your non-essential expenses: Before you know where you need to cut, you’ll want a detailed expense list and realistic revenue projection. Then you can calculate where and how much to scale back.
Stay profitable even during the tricky times with Teamwork
Recessions will come and go. Just how hard the next one will hit is something we can’t predict. But by adequately preparing for what might happen you’re giving your agency the best possible chance at surviving the storm — and anything else that comes your way.
Looking to improve your agency’s profitability? We’ve got you covered! Teamwork makes staying organized, efficient, and profitable easy, even in the most difficult times. Find out more about how agencies use Teamwork to scale and increase profitability.