Are You Prepared for the Next Recession?
Is the next recession ahead… or is it already here?
Fears that a recession is coming soon have increased significantly in recent months. In fact, it may have already arrived.
We’re experiencing the highest rate of inflation in 40 years. Consumer optimism is at its lowest point (barely 50%) since this survey began in 1978 and is now even lower than during the worst of the pandemic. There’s heavy selling on Wall Street with the Dow dropping 10.1% during the first two weeks of June alone. And even the strong labor market is showing signs of weakening.
It’s definitely not good news for business. This article provides what we think the owners of marketing communications agencies should be doing about it.
Nine steps to be better prepared for recession.
These are:
1. Strengthen your client relationships.
2. Sharpen your agency’s brand proposition.
3. Increase your marketing efforts immediately.
4. Make sure your sales process is working.
5. Upgrade talent (the recession can actually help).
6. Adopt and faithfully execute best practices including Client Engagement Letter, Scope of Work and Billing.
7. Tighten up financial management.
8. Ensure a strong relationship with your banker.
9. Remember that recessions present opportunities as well as challenges.
Now let’s get into the details of each one.
1. Preparation should start with your client relationships.
Building strong relationships with your clients can help your agency overcome possible performance-related issues which might become particularly troublesome during difficult times.
Execute a client feedback survey as soon as possible to learn the unvarnished truth about what your clients really think about your firm. It includes:
- The overall value you’re providing to them.
- Any concerns or unmet needs.
- Areas of the agency’s performance which should be improved.
- Uncovering any other threats to the relationship before it’s too late.
- Identifying opportunities for growing the account.
If your clients are looking to add talent, can you help them in their searches? Helping clients in recruiting for needed positions is always a good way to strengthen the client/agency relationship (while adding potential allies and “friends of the agency” to the client’s organization).
Meet with your account leaders to ensure that each account is being served as efficiently as possible. Brainstorm new ways of further enhancing operational efficiency. Also make sure that client budgets are being spent in full and you’re not leaving income on the table.
Finally, don’t discount or give away work even if recessionary pressures appear. This will only cheapen how clients perceive you.
2. Sharpen your brand proposition so it’s ultra-competitive.
Work hard and quickly to make sure your agency has the most powerful positioning possible. The agency’s knowledge, expertise and services have probably evolved over time. Is your positioning taking maximum advantage of what you can offer to clients today? Dig deeply to identify your core competitive advantage, articulate it clearly and then leverage it to its fullest.
Here are just a few more ways to become “super competitive” and forge productively forward regardless of what the economy may throw at you:
- Structure your positioning, people and processes for specific types of prospects.
- Develop proven methodologies which help you deliver better results for clients than your competitors can.
- Support your positioning with compelling bios for your key people and well-written (and brief) case studies.
- Keep your website and capabilities presentation fresh, attention-grabbing and persuasive at all times.
- Monitor your key competitors’ activities to be sure you can equal or exceed their offerings.
3. Dial up your marketing TODAY.
A recession can actually provide opportunities to grow the business and increase market share for agencies which are prepared to take advantage of them.
Here’s how to be one of those agencies:
1. As discussed above, ensure that your positioning and messaging are as compelling as possible… and provide prospects with the proof of your super competitiveness.
2. Identify recession-proof prospects (such as health care) and aggressively pursue them.
3. Revitalize or launch a prospect-specific marketing plan. Name names. Go after them proactively with value-added content, thought leadership and insights into their businesses and brands.
4. Follow up with prospects who, by visiting your website, have expressed potential interest in your firm. Subscribe to a service such as WebVisitor (there are others too) to learn who these visitors are with their e-mail addresses. Then reach them with a tightly targeted social media campaign.
5. Take a fresh (and critical) look at your website’s vitally important SEO. Is it effectively directing desirable prospects to your site? Or is it too self-referential and you’re basically talking to yourself? Google changes its rules all the time. Don’t be left out in the cold.
These actions will also foster a self-confident, future-facing “New business state-of-mind” throughout your agency.
4. Be Pitch Perfect because every opportunity will now matter even more.
Carefully examine your sales process because every opportunity to close new business will be even more important than before. During a recession, there will be fewer leads. So you’ll need to increase your win rate if you hope to keep growing.
How effective are your pitch process and presentations, really? Do your leaders follow the approved process for every pitch? After each pitch (win or lose), do you conduct an in-depth debrief so that you’re continually refining and improving over time? Are you staying in touch with the prospects you didn’t win so they can find you the next time?
Before every pitch (the earlier, the better), are you finding influencers or board members at the prospect who can help drive the decision to your agency?
5. A recession can be the best time to upgrade talent.
Many highly-paid senior leaders will be cut by the larger firms during a recession. While other agencies are hunkering down, you can increase your competitiveness by cherry-picking from among the best of them. By zigging while the other guy’s zagging.
Now is the time to increase your commitment to employee training to enhance competitiveness through:
- In-depth teaching and ongoing coaching on your agency’s core processes.
- Enhancing key skills including public speaking and pitch deck development.
- Improving the agency’s infrastructure.
- Expanding knowledge of the business principles for running a successful communications firm.
It’s also the time to weed out under-performers. 10% of the people at just about every agency can be let go without negative effects. Invest this money instead in adding an A-list performer or two (or simply let it fall to the bottom line).
Beware of decreased workloads during a recession. Idle hands can be morale killers. Keep your team busy with client work or important internal projects. Consider developing ever more engaging sales tools, marketing content and other growth-oriented initiatives.
Whenever the recession may arrive and no matter how long it lasts, use the time to help every person in your agency (including you) become better, smarter and more effective.
6. Protect your profit, people and future with a strong Client Engagement Letter, clearly defined Scopes of Work and a “Best practices” billing process.
For every new client (and wherever possible for existing clients), we strongly encourage you to clearly define the client/agency relationship, expectations, compensation and workload in carefully-crafted documents including a Client Engagement Letter and Scope of Work.
At a minimum, the Client Engagement Letter should include:
- Billing type, mark-ups and payment terms.
- Reasonable termination period. (Push for 90 days. If you can’t get that, try for 60, 45, 30… anything is better than no time at all.)
- Define the compensation that will be paid to you during the termination period.
- Indemnification.
- Protecting your staff vs. poaching by clients.
- Ownership of materials.
Get as much money as you can upfront so that you’re working with client funds and not your own.
Review our detailed thinking on the Client Engagement Letter here.
A proper Scope of Work should always be in writing, very specific and include at least:
- A zero-based budget which reflects all of the tactics, people, hours, mark-up and taxes required to execute the project.
- Your right to be paid in full for incremental client requests.
- Agency also reserves the right to move dollars between budget categories as needed.
- Since no one can predict the future, a contingency of +/- 10% should be built into all estimates.
- Adding 15% to the tactical budget to cover the agency’s time for client meetings and phone/video calls.
Each scope of work should be added as an addendum to the Client Engagement Letter.
Review our detailed thinking on developing the Scope of Work document here.
Now is also the time to ensure that you’re following best practices for billing.
It will further bolster operational efficiency and profitability by:
- Fighting scope creep.
- Improving cash flow.
- Identifying where over-servicing is occurring.
- Uncovering possible staff performance issues.
Review our detailed thinking on best practices for billing here.
7. Tighten up every area of your financial management.
Start running your firm for maximum profit NOW. Profit protects you during tough economic times. Losing a large client at an agency operating at a 10% profit margin can be a huge threat to survival. If you’re operating at 35%, losing that same client is a hiccup.
Here are four keys to increasing profits even without adding new business:
- Your pricing is designed correctly.
- Client budgets are calculated accurately.
- Maximizing the “billability” of each person and team.
- Eliminating write-offs.
You should also be building up your cash reserves. Cash is king in a bad economy. You can increase cash by:
- Pre-billing clients for large expenses.
- Reducing payment terms to vendors.
- Getting billing out more quickly. Every day lost impacts cash collections.
- Timely collection of all accounts receivable.
- Reducing non-people operating expenses to the degree possible.
Finally, as needed, align your actions and operations with the agency’s “line of defense” where the sequence is:
1. Reducing profits.
2. Salary reductions for agency owners and senior leadership.
3. Dipping into lines of credit/debt.
4. Bankruptcy.
Prosper Group has the tools, team and CFO-level financial expertise to help you do all of these things.
8. Make sure you have a strong relationship with your bank.
Stay in regular contact with your business bankers. Keep them current on the agency by meeting every six months to review your financials, strategy and news (including any business wins or significant new hires).
The closer the relationship with your bankers and the more they know about the firm, the more likely they’ll be there for you when you need them.
9. Remember that recessions present opportunities as well as challenges.
After you’ve protected your agency as recommended throughout this piece, don’t forget to take a close look at exciting opportunities that may arise during tougher times. Such as:
1. Since M&A prices will go down during a recession, this can be an excellent time to acquire another agency. How and where would an acquisition help you most? Which agencies could provide that?
2. As noted above, this can also be the right time to recruit game-changing talent that would often be unavailable in a stronger economy.
3. Further, consider building new offerings in creative, data, strategy development, content and other in-demand areas.
Summing it all up.
These are the nine steps you should be taking now to not only protect your agency during a recession but also keep growing regardless of what the future may bring:
1. Strengthen your client relationships.
2. Sharpen your agency’s brand proposition.
3. Increase your marketing efforts.
4. Make sure your sales process is working.
5. Upgrade talent (the recession can actually help).
6. Adopt and faithfully execute best practices including Client Engagement Letter, Scope of Work and Billing.
7. Tighten up financial management.
8. Ensure a strong relationship with your banker.
9. Remember that recessions present opportunities as well as challenges.
Prosper Group is here to help you succeed.
We are solely focused on helping the owners of independent marketing communications agencies achieve their ambitions and maximize the value of their life's work.
Our team of former agency leaders and owners focus their deep experience on implementing proven proprietary methodologies across our three practices of agency performance, owner exit planning and M&A transactions in order to drive owner and agency success. For more information, please visit our Services page
