Part 2: Recession, Time to Cut Costs?

In an earlier blog entry, we wrote about how most businesses cut costs during economic downturn, and how, invariably, most make the fatal mistake of cutting marketing ‘expenses’.

Read it here if you have not done so:

https://businesscoaching.works/index.php/2015/10/13/recession-time-to-cut-costs/

 

This week, we’d like to share with you the strategy a client adopted to manage expenses during the last downturn in 2007-2008. Not only did they managed to weather the downturn, they came out of it with a stronger, more united team and bigger market share.

The nature of the client’s business was turnkey project development. A couple of projects were put on hold by their clients, leading to a temporary drop in business. They had initially wanted to retrench some staff and cut their sales & marketing budget to cope with the situation.

 

We analyzed their numbers with them and together we concluded:

1. The business needed continuous sources of leads(inquiries).
2. They needed repeat business from returning customers.
3. They also needed to continuously sell more services to existing customers.
4. Cutting sales & marketing budget would directly impact their ability to carry out effective strategies for items number 1-3 above.
5. They have a highly skilled & experienced team which took them a couple of years to develop. They did not want to lose any of the team members except for 1-2 individuals.

 

Here’s what they did:

1. The business owner called for a team meeting and explained the situation.
2. He followed up on his explanation with an action plan which he passionately sold to the team: there would be no retrenchment, instead, a salary cut would be implemented across the board with a written guarantee.
3. The written guarantee: he would backdate and reimburse the cut amount as well as reinstate their salaries to pre-cut level as soon as the business stabilized.
4. Savings from salary cut would be diverted to sales & marketing activities to generate more business, the business owner will not use it for other purpose.
5. Technical team members who had spare time were re-assigned to help out in sales & marketing, they will be given internal training.

 

The outcome:

1. There were 2 resignations but everyone else pulled together and supported the business owner. (The resignations were team members they decided earlier they didn’t want to retain.)
2. The business owner kept his word & reinstated his team’s salaries within 12 months and reimbursed them the backdated amount in 6 installments.

 

Conclusion:

1. The business owner turned a negative into a positive, a de-motivating situation became one of the best team building experience instead.
2. Cutting costs to weather a downturn is not enough and seldom work in the long run. Instead, a business needs to “sell its way out of a slump” by intensifying the right sales & marketing strategies.

 

Is the current downturn affecting your business? What pro-active steps are you taking to sustain growth? Need some help? Register NOW for our FREE Business Optimization Clinic, valued at RM699. We guarantee you will get at least 1-2 ideas you can implement immediately, even if you do not engage our services.

Have a profitable week ahead!

ps: Only 10 sessions every month for qualified business owners. Claim yours today!