The economy is in a constant state of flux. New highs can become new lows seemingly overnight, and this volatility can instill fear about an oncoming recession. Online store owners and ecommerce brands are not immune to economic downturns, but there are concrete actions that you can take to bolster your business ahead of time. The key is running a lean, effective operation so that if a recession hits, you are prepared.
In this article, we’ll outline what you need to know to stay several steps ahead, and minimize any damage in the event of a widespread financial contraction.
How to Recession Proof Your Ecommerce Business
1. Reduce overhead
Companies with bloated overhead costs are at a high risk of facing financial hardship, especially should a recession lead to a steep decline in consumer spending. It is therefore pivotal that you reduce any expenses that don’t directly contribute to sales or yield substantial revenue traction for your business.
Besides conducting a general business impact analysis, you should take a closer look at your company’s spending. Follow the money to see where you can make some cuts to keep your head above the water.
One of the biggest mistakes companies can make in any macro environment is hiring too many people too quickly. A hiring spree may feel like a worthwhile investment at the time, but you should always zoom out and evaluate the cost versus the benefit of each member you plan to add to your team.
It is crucial to ensure your payroll expenses–the wages that you’re paying to your employees in exchange for the work they’re doing for your business–are justified by the value you’re receiving in return. You can accomplish more than you might think with a small but mighty, hard-working crew.
It is also a good idea to frequently run an audit of the software services you have in your arsenal. While there are certainly many that are must-have, essential components of your operation–from inventory forecasting tools to the Shopify apps that are integrated into your storefront–it’s also likely you will find several subscriptions you rarely or never use.
If a piece of software is not increasing your efficiency, helping you reach potential customers, or boosting your conversion rate, it might be time to give it the ax. If you’re not comfortable cutting ties with different platforms completely, many software companies will let you pause your subscriptions rather than cancel them outright. This way, if you feel you might still get use out of a piece of software at a later date, particularly when you’re not looking to cut costs, you can always resume your membership.
When running a business, every dollar counts. The goal at the end of the day is to make a profit, the difficulty of which can be amplified during a recession. When you eliminate all the nice-to-haves and anything that isn’t mission critical for your ecom venture, you are much more likely to weather any economic storms.
2. Optimize finances
Trying to run a business without a budget is like trying to build a house without a blueprint. Being able to project how much you anticipate spending on different elements of your operation enables you to allocate resources in an effective and fruitful fashion.
In times of broad financial distress, it is often necessary to create a stricter budget and adhere to it as closely as possible. While potentially painful to tighten the belt in this manner, austerity measures and increased frugality can be leveraged to stretch your finances further. It is necessary to monitor your KPIs and expenses like a hawk, catching anything that raises a red flag and addressing it as soon as possible. The more capital you can preserve in your bank account, the better.
Your catalog and stockpile of inventory is another place you should be evaluating as you strive to optimize your finances. Low-performing SKUs and items that are selling at a snail’s pace are doing nothing but tying up your funds. Getting rid of unpopular products will allow you to re-focus on what’s working, minimize costly storage fees, and free up space in your warehouse. By eliminating products that are not giving you a favorable ROI, you can increase the liquidity of your business and lower your cash conversion cycle.
3. Optimize operations
Time is money, and in a recession, the goal should be to spend less money, not more. Therefore, any areas where you can save time and operate more efficiently are a major benefit for your business.
It is a valuable exercise to break down all of the manual tasks that are being performed by your employees or virtual assistants. Ask yourself the following question: do these have to be done by humans, or are there services available that can accomplish the same thing for a fraction of the cost?
Chances are, much of what’s currently being done manually can be automated with a service like Zapier or Alloy Automation. These tools can help you save on labor costs and streamline many tedious (and expensive from a payroll standpoint) activities.
Automation tools are designed to perform a series of predetermined actions and can execute workflows without any kind of human intervention. This automation can enable your business operations to continue uninterrupted, while also propeling you to scale without needing to hire more bodies. This can be a potent formula when there is a prolonged downturn in economic activity.
It is also possible there are a number of operational expenses that you are not being charged correctly for. This might include with your 3PL, and the fees associated with the warehousing and fulfillment of your goods. Double check the terms of your agreement, and review all of your invoices periodically. Make sure that what you are being billed for is in line with your expectations.
Likewise, if you run an Amazon FBA store, you are familiar with the flat fee that is charged for each unit, based on the size and weight of the item. In your Seller Central account, make sure that the metrics associated with your goods are accurate. You can open a support ticket if you feel the size and weight of your items are incorrect, and they need to be re-measured. After all, even a few pennies saved per unit can add up over a large volume of inventory.
We recommend using a tool like GETIDA to audit FBA-related transactions and file reimbursement claims on your behalf.
4. Secure Funding
When times are tough, you’ll wish you had adequate funding to stay afloat. There are few things more stressful as a business owner than seeing your cash balance heading to zero.
Luckily, there are a number of platforms available that provide much-needed capital for ecommerce companies just like yours. Alternate lenders like 8fig provide funding focused on supply chain and optimizing cashflow while Clearco and Wayflyer have flexible repayment options through revenue-based financing (RBF).
Revenue-based financing is a method of giving capital to ecommerce businesses in exchange for a percentage of ongoing revenues. This is effectively an alternative to debt and equity-based funding. No upfront ownership in your business is taken, and no personal guarantees are involved.
Because repayment is tied to monthly revenue, a drop in sales that might be correlated with a recession means you would have smaller monthly payment obligations. In an economic downturn, this is crucial for the survival of your business. You wouldn’t want to be left on the hook for large, fixed payments that are unmanageable if revenue is on a temporary decline.
You can find a full list of the best resources for funding and securing ecommerce business loans here.
5. Maximize Customer Lifetime Value
Obsession with the customer is how Amazon grew to become the world's largest online retailer, and it’s exactly the same approach you should be taking in your own business. If someone has a good experience buying and using your products, they are much more likely to become customers for life. Not only that, but the chance that they leave positive reviews and spread the word among friends and family increases as well. This kind of organic support is exactly what you need to sustain your operations during tough times.
There are many actionable steps that you can take to boost customer loyalty. For one, you can focus on optimizing your sales funnel and customer touch points. As it can take up to twelve touchpoints to convert a customer, you want to ensure each one is making an impact and enticing your prospective buyers. A/B testing and online focus groups can be leveraged to back up your gut instinct with hard data about what actually resonates with your audience.
You also want to make sure that you have email and SMS flows activated so that you’re not leaving any revenue on the table. Use a tool like Postscript to help manage your SMS text marketing campaigns. With Postscript, you can use your store data to initiate automated conversations with your customers. You can do things like contact those who have abandoned their cart and encourage them to complete their purchase with irresistible discount codes.
Layer this with personalized email messaging using a service like Klaviyo. This marketing tool can allow you to create highly targeted email campaigns, and segment shoppers by order history and past browsing behavior. You can count on this to deliver fully customized, branded emails that are crafted to boost engagement.
In a bad economy where most ecommerce businesses are struggling, your ability to use data and personalized marketing to retain customers can set you apart and make all the difference to your bottom line.
6. Improve Conversion Rates
When sales are slowing down, this is a perfect opportunity to review your site for any low hanging fruit and minor tweaks that can be made to immediately increase revenue.
Start by making sure your storefront is optimized for desktop as well as mobile. Put yourself in the shoes of your customer, and simulate how someone might interact with your store. Are there any broken links that need to be fixed? Any glitches that should be resolved? Are your photos clear, compelling, and of adequate size? A bit of housekeeping can go a long way toward improving your conversion rates. These are low cost ways to extract value out of your current operation and within your existing framework.
Introducing a Buy Now Pay Later (BNPL) tool like Afterpay can also increase your revenue, especially if you sell higher ticket items. Giving your customers the ability to split their payment up over a period of time makes it more likely that they will splurge on a purchase. By offering greater payment flexibility with BNPL services, this can increase your average order value and boost conversion rates.
Shop Pay is another way to reduce friction at the point of purchase. It is an integrated service within Shopify that enables buyers–particularly those who have bought from you before–to submit their orders in an automated fashion during an online shopping session.
It is essentially a checkout system that saves payment information so that future purchases can be made with minimal intervention. Required fields are inputted on behalf of your shoppers, streamlining the entire buying and selling process.
Read our full article on Shop Pay here, and learn how you can use it to allow your customers to execute their orders even faster.
And if you’re looking for additional ways to optimize conversion rates on your Shopify store, check out our free Conversion and App Audit Checklist.
7. Create new revenue streams
When sales are on a downward slope, the solution can often lie in opening up additional channels of revenue.
This could mean offering subscription packages with tools like Recharge or Skio. Locking in recurring payments can turn a one-time fling with your customers into a long term, prosperous relationship.
You can also build a paid community with bonus offers and discounts. The same way a site like Patreon allows content creators to monetize their fan base with members paying for exclusive materials, you can utilize your email list to tap into your brand’s most die-hard supporters and create an inner circle of your own. Make your customers feel part of a club, and offer them perks that justify the price of their membership.
Directly on your site, you might think of offering digital downloads in the form of ebooks, product guides, and branded content as well. Say you sell weight lifting equipment, it would be a logical next step to offer paid, supplemental exercise videos that can be downloaded for customers to use in tandem with your physical products. Get creative and offer complementary resources that your existing audience will find useful.
8. Focus on the customer experience
When all is said and done, running a business is about satisfying your customer. If your customer has a stellar, five-star experience with you and an average experience with a competitor, they’re more likely to make your storefront their go-to in the future.
Involve your customers in as many stages of the product development process as you can. Solicit responses with polls on social media or SMS, and ask your audience what would make them buy new products in a potential recession. Gather detailed insights on things like functionality and price points, and find out what design prospects stand out the most.
Use this feedback to improve your prototypes and overall development process. When it is time to deliver to customers, you will know that what they see and receive has been built upon by many iterations of commentary and critique.
In a recession, you don’t want to launch products blindly. Since there is not as much margin for error, you want to have full confidence that what you introduce to the market will be well-received.
9. Consider selling your business
Selling your business at the right moment can be a logical and necessary move. It can free up both the time needed to pursue other ventures, and in an economic recession, can be essential to shore up much-needed capital.
Acquisition marketplaces like Flippa and Empire Flippers can connect ecommerce business owners looking to sell with buyers looking to acquire an online store. These are high-traffic spaces that allow you to put a spotlight on your offer, and ideally land a sale with the right qualified buyer.
For more information on how to maximize the value of your online business when deciding to sell, read our detailed guide here.