8 Effective Ways to Recession-Proof Your Commerce Business in 2023

For the last few months, economists have predicted a global economic downturn. Taking numerous factors into consideration, it is safe to say that businesses in the commercial sector would be smart to brace themselves for the possibility of a recession, even if one has not materialized yet.

A recession may cause price increases and it’s possible that it may wreak havoc on supply networks making consumption decline inevitable. The effect they would have on your company depends on its business nature and the market. According to the National Bureau of Economic Research, a recession is defined as:

“a major fall in economic activity that is spread out throughout the sector, and that lasts more than a few months”.

Just a year ago, the pandemic forced retailers and manufacturers to build capacity as they stocked up on inventory in response to nationwide shutdowns and supply chain disruptions. Discussions on a possible decline in consumer demand were placed in the far-off future. Exactly one year later, it eventually happened. As a result, in today’s more challenging business climate, long-term planning has become more crucial than ever.

Is Your Business Prepared for a Recession?

Declining sales are likely to be one of the earliest warning signals of an economic downturn for your company. Customers may hesitate to make unnecessary purchases during economic uncertainty, so it’s best to sell just what they need. Contract renewal rates will drop, and cancellation rates will rise.

On the other hand, it might be simpler to store inputs. As suppliers see a drop in demand, they may be able to fulfill your orders more quickly and at cheaper costs at first. They need to cut down on production, and the problem will disappear. 

Contrary to popular belief, your firm may be at its most successful and productive just before a recession. When demand in your sector dips, the last thing you want is to be stuck with an excess of inputs or a large stockpile of your goods. Watch the signals closely and proceed with care until the fog lifts.

Here are eight tried and true methods for keeping a commercial enterprise afloat in lean times.

1. Invest in Crisis Management & Establish an Emergency Fund

Having access to liquid funds allows for swift spending and strategic investment. It’s important to note that not every business has a deep financial cushion like the big players. That’s why it needs to happen when your business is doing well. Being proactive will help you combat potential recession and economic uncertainty.

“Financing isn’t only a stumbling block on the road to launching a successful commerce venture. According to 8fig, a service that provides finance for businesses, “continuous cash flow is required to acquire inventory, execute successful advertising, manage the supply chain, and create items once your store is up for business.”

And a recession may make things much worse. For instance, amid a recession, inventory management, transportation, and logistics are more likely to become cost-intensive. Having some spare cash on hand makes it easier to deal with these kinds of price increases.

Saving up to ensure cash flow in trying times is the most basic protection a company can build. It would be wise to reinvest earnings rather than spend on frivolous expenditures. Some assets, such as machinery or equipment, may not be essential to ongoing operations, so selling them might be a viable alternative. If and when circumstances improve, you can always rebuy them. Sell off assets while you still can.

Finally, if investors or funding businesses can provide additional finance, you should think about taking advantage of it as long as you fully understand the conditions. Think about making your business as financially and operationally lean as possible.

2. Keep an Eye on Your Market & Adapt to Customers’ Needs

The pandemic highlighted the need for companies to adjust to the shifting demands of their clients. Traditional businesses suffered greatly as a result of the lockdowns. In a time when many firms failed to adapt, those who did were the ones that could swiftly shift gears. It didn’t take long at all to apply some of the modifications including, curbside collection, delivery, and electronic payment processing.

Businesses that can adapt the most don’t necessarily do new things, but they do the same things in a new way. In particular, they have a distinct way of listening and a different way of thinking about the future, as pointed out by Cassandra Nordlund, Director, Advisory, Gartner.

Just like brick-and-mortar stores, online enterprises must be flexible to survive. Take on the role of marketer and pay attention to what your clients are telling you. Do all you can to get in touch with them. Conduct a poll to find out what people would do and purchase if the economy turned for the worse. With this information, preparations can be made.

For example, amid a recession, shoppers may be more price-conscious than usual. Change your retail store’s catalog to put the spotlight on more reasonably priced products and reduce the number of higher-end ones.

3. Enable Operational Efficiency Improvements

Better cash flow management is another way to strengthen your financial situation alongside increasing your capital. The margins and capital you have will be eroded by unnecessary expenditure.

Before things become tight, it’s essential to simplify and improve processes. Check your company’s expenses to identify where cuts can be made without compromising the end results. Wasted money sometimes stems from resources that aren’t pulling their weight, investing in low-benefit assets, and having organizational bloat. Consider these expenditures while you look for places to become a much leaner operation.

If you severely limit your expenditure, though, you may find that your efforts can backfire. To save money, you may, for instance, stop paying for some of the online resources you now rely on to carry out day-to-day operations. However, it may not be a good idea to reduce them if doing so will have a significant effect on high-quality productivity. Check the fine print to learn the value of each line item before determining whether to eliminate it or keep it.

Don’t forget that not all purchases are unnecessary. Even under challenging circumstances, opportunities may emerge. Offering something brand fresh to the market might suddenly become lucrative. It could be worth it to take a chance if the opportunity presents itself. Here’s when having some money stashed away might come in helpful.

4. Identify Ways to Reduce Overhead

Overhead costs don’t change in response to changes in income, making them an especially pressing issue during an economic recession. A slash-and-burn strategy, however, might do more damage than good, so it’s helpful to distinguish between three tiers of overhead reductions: simple cuts, savings that need adjustments to processes, and dramatic cutbacks. 

Reducing or removing worker benefits is a simple way to save money, as is renegotiating contracts with suppliers or switching to a new vendor for services like office cleaning or telecoms.

Reducing or eliminating expenditures on travel and leisure and outsourcing specific tasks might be the next step, but it would need a reorganization of operations. It’s possible to save a lot of money by cutting costs in administrative areas, but doing so might cause a lot of chaos. 

Some extreme cost reductions include laying off workers, merging offices, and allowing employees to work from home. Finding methods to cut costs ahead of a downturn may aid in scenario planning and may even reveal savings strategies that are prudent regardless of the state of the economy.

5. Consider New Ways to Provide Value

Despite their best efforts, many online merchants suffer significantly during a recession. Since consumers are likewise cutting down on spending, a decline in revenue is to be anticipated.

The instinct of many firms in this situation is to lower prices via sales and discounts. However, keep in mind that drastic price cuts might have a negative impact on profits and adaptability.

When asked about pricing, Warren Buffet said, “If you can increase prices without losing customers to a competition, you’ve got a very excellent firm.” And if you need a prayer meeting to justify a 10% price hike, you know you’ve got a bad business.

Instead of lowering costs, think of additional methods to provide value to customers. Provide extra time for returns or guarantees, free delivery, or loyalty points, and make sure consumers know about these incentives.

If you’re trying to entice shoppers who are keeping an eye on their budget, though, you could be better off offering package deals than individual markdowns. By doing so, you may avoid lowering prices across the board and still promote other offerings or move stale stock.

6. Pivot the Business

Changing your company’s focus, or “pivoting,” may be a difficult choice for entrepreneurs to make. However, if circumstances are looking dire, this might be a choice that saves your company.

For instance, the drop-shipping business model has proven profitable for many online store owners. Because they don’t have to worry about stocking shelves or arranging deliveries which means drop shippers often have lower operating expenses. However, this may not be the case during a recession.

Dropshippers are vulnerable to supply chain disruptions because they lack visibility into inventory levels and cannot accurately reassure clients while being totally dependent on their suppliers.

The price of commodities may be significantly affected by fluctuations in foreign currency rates. We might also expect transportation delays. These factors usually lead to wildly fluctuating costs and protracted delivery timeframes. Dropshippers would have little say in the matter and could have to deal with unhappy customers.

Businesses that can foresee these shifts will have more time to reevaluate their models and make adjustments that will allow them to serve their consumers better. With the right infrastructure, a drop shipping company may transition into traditional retail, where it purchases, stores, and manages its inventory. 

This course of action may need more resources and effort, but it gives you more control over your business and reduces the risks associated with the existing business method.

7. Deliver Enhanced Customer Experiences

Customer experience (CX) has grown more important than product and pricing as a brand differentiator in recent years. Studies show that 86% of consumers are prepared to shell out more cash for a premium shopping experience. Furthermore, a recent PWC survey found that consumers are prepared to spend more on higher-priced items (furniture, for example).

Your CX strategy is out of date if it still prioritizes customer care above everything else. Modern marketing approaches take the customer’s whole journey into account, shifting the focus from a purely transactional bond to one based on shared experiences. Successful sellers think about and carefully craft every stage of the client experience, from the first point of contact through the final purchase and beyond.

8. Sustaining Success From the Ground Up

Resilience in business is a must to ensure ease during hard times. Saving money and cutting down in some areas might help you get through a tough economic time like a recession. What matters is that the company makes enough money to stay in business so that it may continue to compete successfully.

Despite all the pessimism, economic downturns do eventually end. If you can make it through a recession, you should be better prepared to thrive in a more prosperous economy. On the plus side, it’s anticipated that the prevalence of online shopping will continue to grow worldwide. Online shopping is anticipated to remain popular among consumers.

Final Word

Assuming the current trend continues, you may find favorable openings in your target market, specialty, or geographic region. In some instances, a downturn might even provide a golden opportunity for expansion. If you put in the time and effort in advance, you’ll be in a great position to capitalize on such openings when they arise.

Cooperative Computing’s commerce solution will help you weather economic uncertainties by raising average order value, customer lifetime value, and revenue. Motivate clients and win their loyalty by catering to their tastes and preferences throughout the purchase process.