A revenue crisis can happen to any business. It can have its foundations from an economic downturn or increased competition. On the other hand, it can originate from internal mistakes. Whatever the reason, it is a problem that needs a solution.
So, you’ve compared actuals to budgets for the past few months, reviewed your cash flow forecast and it’s clear that revenue is declining. What do you do next?
You need to keep your business afloat in the short term and help it prosper in the long term. There are 7 main areas of your business to look at. Your own circumstances and the reasons for the decline in revenue will guide which actions are most suitable for you. Identify the 3 or 4 most important actions and implement those before moving on to others – you can’t change everything at once! There are lots of questions in this article and only you can provide the answers.
7 Areas to Review In Response to a Revenue Crisis
Can you increase your prices? That may sound counter-intuitive and it may result in the loss of some customers, but could you bring in more revenue by charging a higher price to a smaller number of customers? And could that potentially reduce your costs as well as it’s cheaper to service fewer customers?
Are there some customers, products or services who are more profitable than others? Sometimes you can improve your bottom line by ditching those that cost you more.
Pricing is a sensitive topic and what you can do will be constrained by the industry you’re in and how your competitors behave. There are ways you can experiment with pricing such as only charging the increased price to new customers initially. It may take some time to find the best spot. The important thing to keep in mind is that your long-term goal is to improve your profit, not just your revenue.
Your pricing options will be different depending on whether you sell goods or services. The price of services can often be customised to each client so you have more scope to experiment in what works and what meets resistance. When you sell goods, it tends to be an all-or-nothing price change. It’s not something you want to do frequently or you will confuse your customers. Try talking to some of your best customers and ask them how they would react to your proposed changes. You might be pleasantly surprised!
Do you have the capacity to do some marketing that will bring in more customers and sales? Depending on the type of business you’re running, a digital campaign can be low-cost and low-risk, with much of the costs directly related to results.
Be wary of offering discounts to attract more customers as this can reduce your overall revenue and profitability but consider if you can sell additional products or services to your existing customers. Giving a discount to one customer who buys in high volume makes sense. Discounting to get a higher number of low-paying customers usually doesn’t.
Sometimes what you have is not so much a revenue crisis but more a collection problem. Consider things like invoicing your customers earlier or automating the generation of invoices – there are many tools available that can help with this. Then implement good processes to ensure your customers pay within the agreed terms. Again, there are apps to help automate this process – we’ve heard good things about Ezycollect, for example.
If you provide a regular service to your customers, would a subscription or monthly fee model work for you? Your customers gain by knowing what they will pay each month. You gain by knowing what’s coming in each month.
Do you have assets you’re not using or not using profitably? Maybe it’s time to sell them off.
Do you have old plant and equipment that’s not as efficient as a modern replacement would be? You may be able to increase your revenue by investing in better equipment. This should be costed carefully and you should consider the cash flow implications of financing. Our loan wizard can help you review different financing scenarios.
Always be careful when cutting expenses to deal with a revenue crisis. What you don’t want to do is harm your long-term prospects. Yes, you could save money by firing your best staff, but how would you service your customers next month and next year?
Having said that, it is prudent to review your expenses and look at what is not essential and what planned purchases can be deferred to a better time. Compare your expenses to previous years and question some of the bigger ones first.
Have you reviewed your choices lately to see whether other suppliers will offer you better prices or better terms? Will your current suppliers do that if you just ask?
Clearing out old and slow-moving stock is the one time when it often makes sense to offer discounts. Ultimately, you have already paid for it. And, if it’s not moving, it may be best to just get rid of it and bring in some cash. Just don’t go straight out and replace it afterwards!
Reducing staff is a common reflex action to a revenue crisis but it may not be the best so consider carefully. Staff costs are significant for most businesses and thus they can provide some quick gains. Remember though, that hiring new staff is expensive too so think about the long-term effects of any decisions you make. And staff are people too.
Can you negotiate fewer hours with casual and part-time staff? If you do this right, they’ll be available when you’re ready to expand your workforce in the future.
Can you use your staff more efficiently? Do you have the right people in the right roles throughout the business? You may find that by restructuring your team, you can move people into more productive roles that will lift your revenue.
Resolving Your Revenue Crisis
Planning ahead is the first part of resolving any crisis. This article will give you some ideas to start with. Talk to the people you work with, your bookkeeper and your accountant before making irreversible decisions and then act on the decisions you’ve made.