Part B: Organizing a Small Business for a Recession
How to turn a recession into our best time, and that’s not a slogan.
After the first article (link), we now understand better that the coming quarters of 2023 and the beginning of 2024 could be summarized as challenging and turbulent,
but undoubtedly businesses that will manage to pass them successfully will be much stronger and ready for the growth that will come beyond already in mid-2024 according to expectations.
We at Saleograph have been making adjustments with our partners, already from the beginning of the year with all our partners and customers, and the truth is that this is exactly what is also being done in large and public companies. Small business owners, must act and the importance of implementation in a small business is critical.
Some key highlights
We Implement to Prepare Our Business for a Recession or Significant Sales Decline
Understanding Cost and Source of Traffic
Almost every small business in Israel operates in the marketing sector to some degrees. Marketing expenses are divided into two main categories:
one is a direct payment to advertising platforms such as Meta and Google (media costs),
and the second is a direct salary or payment to an outsourced provider (in outsourcing, employment is not in the model of an employee-employer contract but by invoice) that will manage, function, and coordinate the campaign’s performance (personnel costs).
There are a variety of platforms and therefore also a variety of professionals.
The first step in understanding cost and source of traffic is essential and most important when we are preparing the business for a recession or significant sales decline.
Our task is to refine our understanding in the field of cost and source of traffic to our shopping areas (in digital and physical sales points – sales floors),
a. How much traffic do we receive to a physical store and/or to the digital store directly from the campaign activity?
b. How much of this traffic buys us?
c. How many new customers were added or purchased from the traffic (if it is about products) or leave leads (if it is about services)?
This understanding is critical. For example, for a CEO of a large company to agree to allocate even one small shekel for marketing, he must know the answers to these three questions accurately, and if he does not understand it accurately, he will ensure to refine it until then, and until then, not a single shekel will be spent on advertising.
Make sure that it is also clear in your business and put pressure on whoever manages the field for you (after all, if you find the money for advertising, there is someone who centralizes it – he is responsible for implementation).
If you have chosen to do the advertising yourself and you have not been able to refine the answer, pay an hourly professional to close the gaps and connect you to the analytical tools, accurately, so that you can see the whole picture and answer these critical questions.
If the activity is carried out by a freelancer (in outsourcing), ask him to provide you with the answers, to present them to you every period that you will set in advance, for example once a month, so that you can go over the performance together to understand well what the results are and how they can be improved from month to month or removed altogether.
And of course, if the situation is such that you have a salaried employee in the business, who is responsible for it, you must control the data even more.
The next step is to measure the profitability of each campaign,
The next step is to measure the profitability of each campaign, strengthen the good ones, and remove the weak ones, those that bring us losses.
During this period, there must be a real attempt to prevent new experiments and adventures, the world of Return On Ad Spend (ROAS) is indeed complex, of course, there are long-term goals such as exposure, and short-term goals such as responsiveness,
in any case you must understand the total return on expenditure and cut everything that does not contribute to profitability. It is important not to run after all sorts of slogans of advertisers in this period for marketing magic solutions, beware of all of them and carefully examine every investment.
Try to lower the position of “investments in advertising” in an attempt to create brand awareness (this is not the time to get excited now about likes or views on one of the posts)
The goal now is to encourage traffic and purchases for “return on investment” to directly take care of liquidity, sales and inventory turnover. If it doesn’t work, think about reducing advertising spending (of course, all this taking into account that you are feeling a decrease in sales, and cash flow pressures)
It is very important to remember! that traffic to a website or clicks on an ad are nice, but they are only one step on the way to a purchase. In general, the person responsible for advertising shows us with enthusiasm the performance of the campaign in terms of the number of clicks or responsiveness, but unfortunately, we must understand the meaning of creating sales in the short term. Unfortunately, there is no other choice and our recommendation is to cut any activity that does not contribute to this.
The next step is to exploit organic traffic in the absence of advertising.
The next step is to exploit organic traffic in the absence of advertising.
Often the key to successfully replacing “loss-making advertising” is to recognize, understand, and exploit the power of organic traffic to your sites – digital and physical (“brand movement” or “mountain movement” as we call it in Saleograph).
Organic traffic is considered to be any traffic to physical stores and/or to the digital store that did not come directly from a specific campaign running in real-time. Rather, it is the entry of booked customers, prime locations, and organic recommendations from search engines.
We often find that organic traffic is the highest quality and the one that keeps the business in existence. When the return on investment from advertising is clearly understood, it is possible to diagnose with certainty whether it is possible to cut or remove advertising budgets and enjoy the brand’s organic traffic, if there is any.
It is always amazing to see at Saleograph how much businesses invest in the design and appearance of the physical store (sales floor) in an attempt to create “organic walking traffic” (people who enter the physical shopping area on foot). But when it comes to an online store that is a profit and loss unit in every sense of the word, whose function is to establish “web traffic” (to the digital area), in most cases no strategy for this has been built and investments have not been budgeted. Many small businesses have been on the internet for years and have not created tactical activities and investments in search engine optimization (SEO), which promotes them to the status of a real digital asset.
You must understand the numbers well before making decisions,
a. What is the success rate of traffic that comes, buys, or leaves details (leads) from campaigns?
b. What is the success rate of traffic that comes organically (appearing in a search engine under a specific keyword, repeat purchases of existing customers, customer recommendations to their friends, and more)?
Now it is clear to us that cutting the advertising budget will contribute to reducing the advertising and marketing expenses section in the financial statements, and it is clear that if we can stabilize the decline in sales, we will significantly improve profitability and cash flow. Therefore, to reduce advertising expenses and stabilize the sales system,
we enter the second stage, and it is to understand that traffic is only traffic (and this is the purpose of advertising) what turns traffic into a sale is none other than the complex itself.
In the physical world of products, the complex is the store itself (sales floor).
In the world of services, the complex can be the office or coffee shop where we close deals.
In the digital world, the internet site “online store” e-commerce or selling services through the site to leave leads.
Here, just like in the marketing and advertising activity from the previous paragraph, the complex must be managed. You must define a responsible person in the business for operating the complex. Again, the meaning is the physical and digital complex are the same even if you decide on different reasons that you are responsible for the complex, there is a responsibility and you as owners must understand it.
Let’s focus for a moment on the website –
it may be that you manage the website and the ongoing updates on it, or you work with a person or outsourcing company that manages it for you, in this period if you cannot extract several parameters from this activity, the matter can drag the business to a real risk. For example, a CEO of a large company builds targeted teams to maintain the following 3 parameters, long before he allocates the capital freed up for advertising:
a. Setting a conversion rate goal for the complex and continuous measurement capabilities of sales:
If it is a new complex, how many people are expected to enter and how many of them will make a purchase?
If it is an existing complex, analyze these data and make sure to improve them month by month.
The goal of the complex manager in the digital and physical store is to ensure the arrangement of goods, comfort, and shopping experience, to carry out tests of what works and what works less, and to do everything to beat the goals set or the records achieved in the past.
In the digital world: If you manage the website and you do not have control over conversion rates, take an hourly professional to connect the analytical tools until you get a complete picture. If the activity is carried out by a freelancer, ask him to provide answers, ask him to assess with you what the expectation is, and build goals based on industry data. In any predetermined period, go over the strategy with you (preferably at least once a month).
Of course, if you employ an employee whose job is this, do it with him.
If you cannot build a workflow for improving conversion rates from month to month, it simply puts your business at risk and you probably don’t have a complex manager.
In the physical world: Use cameras and checkout data to investigate conversion rates at the end of each day and organize the complex, cleaning, order, display of goods, display of promotions and collections, comfort and waiting areas, emphasize service, customer connection, and leaving a good review.
b. Goal: “Increasing the average shopping cart size in the complex”:
Let’s say you have 1,000 organic visits to the complex.
Out of this traffic, 5% of the traffic purchases the complex, so you have 50 purchases.
What is the average shopping cart size of the buyers in the complex?
It is clear to us that if we can increase the average shopping cart by a few percentage points each month, we can completely change our revenue. So instead of investing in how to market more soon, start thinking about how to measure and manage it consistently “in the average shopping cart size in the complex.
Let’s do a calculation:
1,000 visitors or actions entered the complex, of which 5% made 50 purchases with an average cart size of NIS 100, for a total of NIS 5,000.
1,000 visitors or actions entered the complex, of which 5% made 50 purchases at NIS 125, for a total of NIS 6,260.
If you want to increase your turnover, this is what you need to do.
How can you increase the average shopping cart size?
Good understanding of the buyer, his preferences, his motivations, complementary products, connecting different products and packages (bundles), better product presentation, help and assistance in collecting products such as (cart in a supermarket in a retail complex) or a sales script (at a customer service representative) and more …
Be creative! watch the traffic and create new ideas. This is usually the cheapest and highest quality solution for increasing revenue with low risk, which is very suitable for the near future.
In the digital world: We must see the conversion rate, as sharp as a knife so that we can calculate the average shopping cart size and build monthly improvement goals.
Usually, a technical person who knows how to perform a variety of actions and updates on the website to reach a state of improvement (from month to month) such as website speed, user experience, shopping journey, clear presentation of products and promotions, presentation of complementary products, payment options, clear regulations that comply with market conditions, photography, and content and many more actions.
The emphasis here is to do this all the time (just like in the physical world in the management of a store) and not only when building the website.
This relative complexity causes small businesses to lack the ability to handle these components daily, and many operate websites that simply do not pay for themselves. Still, try to use the existing resources, and if you have decided that you are present and operating in the digital arena, you must act and manage it with clear goals, measure results, and beat the shopping cart of the previous month every month.
In the physical world: Use cameras and checkout data to investigate conversion rates, organize the complex, clean and order, ensure the correct way of displaying the goods, signage, displaying promotions and collections clearly, comfort and waiting areas, focus on service, customer connection and leaving a good review. Also here, the goal is to beat the results of the previous month.
c. Goal: “Customer return rate”
If a customer only buys from you once in their lifetime, can you be called a brand?
Well, maybe it works like that in very specific industries like real estate. It is clear to us that the whole purpose of a brand is to create loyalty for repeat purchases by the consumer himself and to encourage the consumer to spread the brand’s values in their close social circles. Yes, it’s that simple. For example, every CEO of a large company checks the LTV (Lifetime Value) metric or the retention rate metric. Have you heard of it? If so, you must start thinking in terms of repeat purchases.
Define a new role in your business, and the role is “Retention Manager.” The goal of the Retention Manager is to take care of loyalty programs and retention to encourage repeat purchases, using tools such as customer club, complementary services, value offers at relevant times, conducting meetings and events, and more.
All to encourage repeat purchases. Usually, the simple tools at our disposal are the world of mailing and the world of messages, but a good manager thinks outside the box and is measured by how he improves the return rate of the customer base to the business from month to month.
In the digital world: Once we have a clear understanding of the average shopping cart size, we can access and analyze how many times a month/year/or any other relevant period, a repeat purchase is made by the same user/customer.
Use automation and email to send customers relevant messages, such as discounts or reminders. Use remarketing to show customers ads for products or services they have previously viewed. Create a personalized area for customers on your website or app. Offer discounts to loyal customers. In general, it takes a technical person to improve return rates on a website. This is one of the reasons why most small business websites simply don’t pay for themselves. However, if you have decided to enter the digital world, try to use the resources you have available to build goals, measure results, and beat the return rate metric every month.
In the physical world: Here, you can use cameras and checkout data to analyze the issue and organize a practical work plan so that you can beat the results of the previous month in terms of the return rate on the sales floor.
4.Reducing all expenses – sometimes this also means layoffs.
In the previous section (LINK), we presented the business reality of today, which is different in almost every aspect from the pandemic period starting from the end of 2019. This was simply a non-representative period, meaning that it is not statistically accurate for how the market works and responds.
For example, online sales websites of small businesses in industries such as fashion, home design, courses and studies, electronics, digital services, and digital software, increased by 50% to 500% during the pandemic.
Some industries experienced the exact opposite
for example, the event, tourism, and culture sector, which experienced a decline of between 30% and a complete halt of business activity and revenue.
The industries that experienced growth were typically businesses that maintained websites exactly as we presented here and maintained all of the key points we discussed. With the help of proper complex management, they succeeded and earned a lot of money compared to those that had “sales domain sites” (an online sales site that is not properly maintained and is not able to generate stable and strong cash flow as a profit and loss unit).
Of course, some businesses have a combined mix of a physical store that was closed during the lockdowns and the website was the way to create an alternative as a profit and loss unit. The level of impact depended on the mix of the complex capabilities.
Where are we headed? You must understand that this wave has passed, the winners won and the losers lost, and now we need to organize for the coming period. For example, every CEO of a large company knows that the way to maintain profitability for shareholders when there is no control over creating new growth engines or the market situation does not allow it, the only way is to be efficient.
You must respond quickly. One of the factors that delay the world of reducing and streamlining is our emotional difficulty, how we perceive ourselves in this context, and how customers or the company will interpret the situation. Go for a short review and make clean business decisions with a business perspective, it is more important than ever now.
a. Check the receipts and expenses for advertising and salary in the last 3 years
Almost all of us are now feeling a drop in sales. Access and retrieve all the sales data for the last 3 years and you will understand the significance of this decrease in percentages in the monthly distribution and separation.
This is not another “Assal Day, Bassal Day”(good day, bad day) or other types of promotions. If the situation indicates a change in trend, take action!
b. Same resources with less revenue:
You must understand that if you are employing the same workforce, with the same software and/or logistical and system tools, with the same external marketing people and/or advisors, and other various expenses related to the peak of sales that passed and was with us in the past 3 years, you are responsible for the situation. The peak has left, and adjustments must be made.
Everything that is considered a waste must be cut immediately. If you are one of those businesses that have more cash flow breathing room (free financial resources), you may be able to avoid a cutback situation. But think carefully about whether it is commercially viable. This is a critical period and it is important to think about it. A good example of this is that you can see big brands in Israel and around the world that started making adjustments to their workforce in the wave of layoffs that started six months ago. This is the preparation of the CEOs to maintain profitability or reduce losses in a period of reduced demand. It is important to apply this also (and certainly) in the small business.
In conclusion:
Most small businesses do not follow the checklist we mentioned here. We believe that this is an integral part of the glass ceiling that is created for the small business due to the difficulty of conducting industry research and analysis, the difficulty of creating a strategy and tactical response, the difficulty of functioning in multiple arenas and marketing and communication platforms and operating complexes.
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We at Sielograph create this reality for businesses and our whole goal is to help the founder/CEO/owner break the glass ceiling at costs suitable for the small business.
So what did we learn here?
We are in a post-corona period characterized by a drop in demand.
In order to survive, we must stop pinning our hopes on marketing, and change the way we look inward
Know how to run our business units well, understand them, measure them and take care of improving them.
If we operate with employees and/or outsourcing services, they must be specified based on the checklist presented here so that we can control what is happening.
And of course, we are no longer at the sales peak of recent years (at least for those who experienced it during the Corona period), so it is important to make organizational adaptations for a period of declining demand.
What is clear is that those who succeed in implementing the checklist we have explained here will enter 2024 with new abilities that are expected to greatly benefit their business situation!
Come on, to work!
your,
Sagiv Gurvitch
Chief Strategist – Saleograph Ltd
