Surviving a Recession: 5 steps to help you through an economic downturn
Almost a year ago, in May 2022, the Bank of England predicted that the UK economy was in for hard times. They expected the 2022 Q4 GDP figures to fall by 1% and then by a further 0.25% during 2023. Inflation was predicted to hit double figures, and petrol prices were expected to shoot up from 130p to 184p per litre.
This set of circumstances would usually herald growing concern in the recruitment market with fears around high unemployment, a lack of vacancies and slower wage growth.
At the start of last summer, permanent job adverts had fallen by 12% and contract positions by 11%. However, year-on-year figures for permanent roles showed a decrease of 2%, and contract positions were up by 5%.
By the autumn, the Office for National Statistics (ONS) said the rate of UK unemployment rose to 3.7% in the three months to October, up from the previous quarter. The data also showed that vacancies dropped by 65,000 in the three months to November to 1.9 million, the fifth quarterly fall in a row and the first annual fall since the beginning of 2022.
Though these figures give cause for concern, this recession may, in fact, be different from previous ones.
That the UK is suffering from a labour shortage is evident; however, whether the cause is the Covid-19 pandemic or Brexit is unclear. Manufacturing and engineering businesses are struggling to find skilled staff, which is affecting productivity. Even though there is a surge in new college courses and training places, it will take time for skilled workers to feed through.
Additionally, staff retention is proving a headache as many young employees are treating their first job as an experiment, moving on when they have a feel for working life.
Given the labour shortage, lack of skilled workers and job retention issues, there should be sufficient demand for recruitment businesses.
The way we work post Covid-19 has changed the face of business. The enforced working from home that has in many organisations morphed into hybrid working has forced employers to undergo a digital and structural transformation. This has benefited recruiters; for example, the need for digital systems has resulted in a boom in technology recruitment.
The structural changes around environmental and social change have prompted job seekers to be aware of organisational credentials, including net zero and gender pay gaps. This shift in candidate requirements has helped Recruiters by creating niche sectors within the industry.
A few examples of businesses that have thrived during downturns
Amazon sales grew by 28% in 2009 during the “great recession.” The tech company continued to innovate with new products during the slumping economy, most notably with new Kindle products, which helped to grow market share. On Christmas Day 2009, Amazon customers bought more e-books than printed books. As a result, in the minds of consumers, Amazon became an innovative company by introducing a lower-cost alternative for struggling consumers.
Another example is Kellogg’s of corn flakes fame. In the 1920s, Post was the market leader in the ready-to-eat cereal category. However, when the Great Depression hit towards the end of the decade, Post significantly cut back on its advertising spending.
Conversely, Kellogg’s doubled its advertising spend, investing heavily in radio advertising and introduced a new cereal called Rice Krispies, featuring ‘Snap, Crackle and Pop.’ As a result, their profits grew by 30%, and Kellogg’s became the category leader, a position it has maintained for decades.
Five steps companies can take to help survive a recession
1. Don’t stop marketing and advertising
Recessions and times of economic downturn are when it is vital that businesses don’t let their customers forget about them by cutting advertising and marketing spending.
McDonald’s fell afoul of this in the 1990 – 1991 recession. Pizza Hut and Taco Bell took advantage of McDonald’s, stopping advertising and promotions. Consequently, Pizza Hut grew sales by 61% and Taco Bell by 40%, while McDonald’s sales declined by 28%.
Now more than ever, bringing their business online and using their website as the business’s ambassador to promote branding and as a crucial component of their marketing is essential.
Even though money may be tight and now isn’t the time for a hard sell, keeping in regular contact with customers through content-rich emails, posting consistently on social media and reaching out to customers you’ve not heard from for a while can all keep you front and centre in their minds.
Businesses need to be creative to get the most out of their marketing budgets and make every pound count.
2. Protect cash flow
Recessions, and economic downturns tend to lead to slimmer profit margins, which can impact cash flow.
To mitigate this, it is critical to plan ahead to cushion cash flow. Below are a few ways to help with this.
- Cut back on unnecessary spending, such as memberships, services and resources you could survive without.
- Renegotiate vendor agreements to improve terms if possible. Though they may be struggling, too. Vendors often prefer to renegotiate rather than lose your business to a more flexible competitor.
- Look into external financial assistance like small business grants or loans to help keep you afloat.
3. Invest in your existing customers
Acquiring a new customer can cost five times more than retaining an existing customer. In fact, increasing customer retention by just five percent can increase profits from between 25-95%.
This is, of course, true at any time but is far more critical during a recession. By building relationships with existing customers, you show them that you value them and will do everything you can to look after them.
Be aware of any issues they have with your product or service, and let your customers know you are prioritising sorting these problems out for them.
4. Try not to cut staff
At the first hint of an economic downturn or recession, the first thought of many businesses is to start cutting staff to get a quick win.
However, the long-term effects on your business when the recession eases, and business picks up could be that you can’t cope with the demand and may struggle to hire the talent you need.
More forward-thinking organisations can benefit from an influx of high-quality talent onto the market, which could do wonders for their business in the medium term.
Historically, companies that continue to hire during recessions can take advantage of the market and thrive when the recession ends.
5. Delegate and automate
During recessions, business leaders need to lead. They’re required to firefight, make tough, business-critical decisions and plan strategically for when the recession ends.
They can’t do that if they’re dealing with mid-level productivity stealing tasks that could be delegated or automated.
Anything that doesn’t add value or has the potential to add significant value in the future should be assigned elsewhere. As the leader of your organisation, you’re its most valuable resource, so spend your time where it will deliver the most value.
Economic downturns and recessions are challenging times for businesses and employees. Surviving and thriving through these infrequent events can be tricky, but by doing everything you can to improve your circumstances and plan for the future post-recession times, it’s possible to come out of the other end stronger and more competitive than before.