Saturday, October 18, 2008

Business - Survival in an Economic Downturn III

This is a continuation of the series on business survival in an economic downturn. This post will focus on renegotiating contracts, jobs, or service agreements to keep customers, picking up customers from other companies/operators that decided to go out of business, and finding new customers when potential clients are holding tight to their money.

One aspect of survival in an economic downturn is the need to maintain your customer base and to find new customers (to replace lost clients or to grow the business with new clients). The following are some thoughts:
  • Consider renegotiating contracts, jobs, service agreements, or purchase agreements to keep your customers. For lawn and landscape maintenance companies, you may need to reduce the cost to customers by offering a reduced service package. For horticultural production businesses such as greenhouses and nurseries, you will likely have to contend with reduced orders. This means you may have to reduce your minimums or extend quantity discounts to lower amounts to keep customers. For landscape installation companies, you may have to scale back jobs to better fit clients budgets in tight economic times.
  • Replacing lost customers will become more of a challenge in tight economic times. Although it is unfortunate that some companies will decide to go out of business, it does provide an opportunity to pick up clients by purchasing their customer list, taking over their service contracts, bidding for their jobs, or filling their orders.
  • Finding new customers in an economic downturn is even more of a challenge. As mentioned above, you can look for new clients when other companies go out of business. You may need to change your business model to consider clients that you have not targeted before. Examples: a wholesale nursery or greenhouse can open up a retail yard, open their business to retail sales in certain time periods, hold plant auctions periodically, or target sales to smaller landscape firms with reduced minimum purchases. A landscape firm that targets higher income customers may open a division that services lower income customers.
  • Reducing prices may increase demand to some degree and thus will pick up new customers. This is dangerous as margins in many businesses are already tight. When reducing prices consider that it will be hard to increase them in the future without losing customers. You must do a thorough economic analysis to see what impact reducing prices will have on your bottom line. Consider any cost cutting measures or increased efficiencies that will allow you to reduce prices without impacting profits.
  • Make customer service a priority. By providing superior service and better attending to the needs and wants of clients, you can often maintain that customer even through down times.
  • Maintain contact with past customers even if they left for another lower cost firm or just decided to do without. You may pick them up again when the economy turns around.
  • Expand relationships with existing clients. Offer your best clients even more services. Negotiate long term deals with these clients to offer your company more stability.

Gordon Johnson, Extension Horticulture Agent, UD, Kent County

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