Marketing firms and agencies are often the first to feel the effects of a recession. This how-to guide will prepare you and your agency when the next recession strikes.

Preparing your agency for the

next recession

Contents

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Introduction

Another recession upon us?

Silver lining

Solutions:

Diversify your clientele

Build cash reserves

Outsource business processes

Your content creation solution

Summary

Control client invoice collections

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Introduction

During a financial crisis, such as a recession, marketing firms and agencies are often the first to feel its effects. In an article on Forbes.com, Peter Fader, professor of marketing at Wharton, illustrated it succinctly, saying, "The first reaction (by most companies) is to cut, cut, cut, and advertising is one of the first things to go."

This should not come as a surprise, as advertising and marketing in

general are often seen as non-essential, which further explains why firms

and agencies often feel the pinch of a bear market. But why should you be

worrying about a recession, when we are recovering from one?

And indeed, many companies tend to curtail spending on marketing and

advertising in times of financial crises.

In the wake of the 2007-

2008 global financial crisis,

Google laid off more than

200 sales and marketing

employees in March 2009.

Likewise, the advertising

giant Omnicom Group

slashed more than 3,000

jobs by the end of 2008

(Bloomberg Business, May

2009).

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Another recession upon us?Unfortunately, several signs are pointing toward a looming problem: another recession.

In a Bloomberg interview, world-renowned investor Jim Rogers said there was "a 100 percent probability that the U.S. economy would be in a downturn within one year.”

"It has been seven years, eight years since we had the last recession in the U.S., and normally, historically we have them every four to seven years for whatever reason - at least we always have," he said. "It does not have to happen in four to seven years, but look at the debt, the debt is staggering.“

In a separate interview with ETF, Rogers said, "Japan is already in recession and some parts of Europe are in recession. Many countries in the world are already in recession.“

CNN also reports that Wall Street is predicting a 7.9 percent decrease in Q1 profits in S&P 500 companies, representing the sharpest and longest decline in quarterly profits since the recession that took place in 2009.

In a March article for Investopedia, Adam Hayes lists down six factors pointing to a global recession in 2016:

• The debt crisis situation in Europe (in particular Greece)

• The bubble in China• The debt problem of

burgeoning student loans, with the government on the hook for more than $1.2 trillion in outstanding student debt

• An unemployment rate (4.9 percent) that does not include discouraged workers (job searchers who have given up looking for work)

• Central banks with no monetary policy options to stimulate the economy, as interest rates are nearly zero

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Silver lining

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Still, this is not to say there will not be challenges. In this

eGuide, we go over a few things you can do to prepare

your agency for the next financial crisis.

Yet for all the gloom and doom of an impending recession, many believe digital

marketing agencies will still be in a better position than others will - some would even

call digital marketing to be recession proof.

A Convince & Convert article on the virtues of digital marketing in times of financial

cries sums it up perfectly: "There is meaningful financial waste associated with

advertising to people who have no interest in your product or service. The superior

targeting ability of online marketing will enable companies to focus their reduced

marketing dollars solely on likely prospects. This will accelerate the trend toward use

of behavioral targeting and retargeting in online ad placement"

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Diversify your clienteleOwners and managers of digital marketing agencies are often excited after landing a huge client - and they have every reason to be. However, while any opportunity to grow revenues is great, having a big client means you now have one entity taking up a major percentage of your revenues. Focusing your revenue sources in just one or two companies is risky, more so in a recession when they are likely to put contracts on hold.

Remember: Your fortunes are essentially tied to those companies, and if one of them runs into financial trouble, so will you. Mind you, even if there is no impending recession, having concentrated sources of revenue still presents the following risks:

• Your clients could suddenly decide to end your contract and move to a competitor

• Your agency may have fulfilled its duties to the company

Either way, the results can wreak havoc on your revenue stream, a

scenario that has happened to far too many digital marketing firms.

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The solution

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The best and safest strategy is to diversify your clientele, that way your

business's survival will not be entirely dependent on one or two customers. If

you presently have a client concentration problem, your next priority should be

finding a way to capture more clients while keeping project loads balanced.

It is also a good idea to diversify your clients' industries for added safety; should

one particular industry experience a slowdown, you have a few backups in good

condition.

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Control client credit and

invoice collections

When it comes to business transactions, many digital marketing firms operate on net-30 terms; that is, you provide a service and wait for 30 days to receive payment. In a recessionary environment, however, 30-day waiting times leave you exposed to collections risks:

• Clients might be forced to defer payment by 60, even 90 days• Clients could go out of business, leaving you with a collections

headache

One way to prepare for this eventuality is to check your clients' commercial credit, especially during an economic downturn when the market is volatile. You can then provide credit terms to clients that are in good standing.

It is also important to put in place a solid system for invoice collections, which helps streamline cash flow and reduces the problem of overdue payments. Your agency's invoice collections

system also doubles as an early warning system for problems, informing you of clients that are paying more slowly than others are, which in turn allows you to adjust credit terms as you see fit. Lastly, build your invoice tracking and collections system early on. That way, it is in place if - or when - a downturn hits.

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In a blog post for the Wall Street

Journal, Ted Jenkin, co-CEO and

founder of financial advisory firm

oXYGen Financial, says:

"If you run a business that is less

than five years old, I would suggest

that you build up at least one year of

cash reserves. This could be some

combination of business checking

cash and personal savings cash.

Until your business maintains a level

of consistency of monthly cash flow

for at least six months. You should

maintain a larger bank account in

case the business runs through

rough patch. I recommend at least

six months of your operating

expenses as a stable base for a

cash reserve."

It should be pointed out, however,

that cash reserves also have the

potential to hurt your business in the

following manner.

Build your agency’s

cash reservesSmall to medium enterprises with no cash reserves generally die off during recessions because they lack the solvency and resilience to survive blows to their revenue. The most common scenarios in a financial crisis are:

• Clients could slow payments and interrupt your cash flow

• One big client might be forced to go out of business

Either way, a cash reserve serves as an insurance policy against these issues. Fortunately, building cash reserves are relatively simple: start saving money, NOW. Think of your reserve as an emergency fund, which means you should not touch it if you do not need it.

If all you are doing is saving money, you may end up failing to pay for operating expenses.It may also limit your ability to invest money towards expanding your business, thus stifling your agency's growth

In other words, saving money in a cash reserve has an opportunity cost.One way to get around this dilemma is to cash in a reserve fund while using financing options to run your business. This is where a line of credit can come in and act as a secondary source of cash flow. Of course, this will mean your business has to qualify for a credit line. If it does not, asset-based loans such as invoice factoring might be the solution.A word of caution: Do not treat financing as free money.

Use the funds to pay for your business expenses, and pay off the line of credit as soon as your clients pay you.

Turning to financing options also means lowering your profit margins, so you need to decide if the tradeoffs between building a cash reserve and lowering profits are a fair exchange.

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Outsource your

business processesMany people see outsourcing as a dirty word, but it is just a natural outcome of agencies looking to stay competitive without adding more staff to their teams. Lower labor costs means a stronger bottom line, which means agencies can allocate resources to strategy and research. In a survival situation like a recession, outsourcing is a viable strategy.

However, the problem is that accurately quantifying the value of outsourcing is difficult. On paper, it makes sense. At a headcount level, it also looks like a sound strategy. But when it comes to actual business results, there are both real and hidden costs to outsourcing that tend to show only when it is too late.

For example, content creation and marketing, a key component of GE's success story of weathering the 2008 recession, is outsourced by upto 85 percent of marketers, according to a survey by Ascend2, a research and marketing

firm providing research-based demand generation to marketing agencies.

These marketers see outsourcing as a way to access specialized skills and capabilities not available in-house. In contrast, only 15 percent of surveyed marketers believe an in-house content creation team is the best solution. Of the 85 percent of marketers that agree with outsourcing, 10 percent outsource all of their content creation.

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Challenges of outsourcing content creation

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In theory, outsourcing content creation looks perfect, but turning over the creation of content assets to a third party can also be a recipe for disaster. Issues involving copyright disputes, plagiarism, and liability, outsourcing something as sensitive as content - especially your clients' content - is replete with risks.

The safest option when outsourcing a part of your agency's operations, particularly with an incoming recession, is to turn to an established and reliable partner who can handle the task of your clients' content creation and marketing safely.

Tempesta Media, a managed services provider of custom original content for digital agencies, PR firms and enterprises, offers a unique outsourced content suite. This solution is ideal for this dilemma, giving you access to expert talent for content marketing and new content creation abilities you can only develop with time, experience, and the right connections.

Tempesta Media offers the following key features:

A network of more than 16,000 vetted professional writers

Expertise in more than 50 different industries Services encompassing article writing, blog posts, white

papers and marketing communications Exclusive and unique content marketing abilities, such as

Simple Social Share™ and Branded Writer™ program Scaled services, allowing agencies of all sizes to

maximize their ability to draw in new clients On-demand content creation solutions with minimal

financial commitment

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Outsourcing makes senseYet even if a candidate does not goes through this entire process, an employee with an hourly rate of $8 can still set back any company by around $3,500 in direct and indirect turnover costs.

In an interview with Investopedia, Eric Koester of MyHighTechStart-Up adds that "estimates range from 1.5 to 3 times of salary for the 'fully baked' cost of an employee - the cost including things like benefits, taxes, equipment, training, rent, etc.“

The lesson? The decision of hiring an employee should not be taken lightly, more so in a bear market where every expenditure and acquisition can affect the survival of your agency.

Outsourcing your content creation and marketing to TempestaMedia may also be a more convenient and cost-effective solution, especially when you compare it to the cost of hiring an employee, which involves:

•Recruitment•Training•Salary•Benefits•Workplace Integration

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In summary

Several signs point toward an impending recession, and economists and investors are citing several statistics to back their claims. Advertising and marketing agencies are almost always the first to feel the brunt of a recession due to many companies' kneejerk reactions of slashing marketing and ad spend. However, digital marketing agencies are in a better position to survive recessionary periods, as digital marketing methods are more cost-effective, accurate and most of all, measureable.

Ways to prepare your digital ad agency for financial crises include diversifying your clients, controlling client credit and invoice collections, building your cash reserve, and outsourcing business processes. Due to the fact that outsourcing a business process, such as content creation, comes with several risks, collaborating with a trusted partner like Tempesta Media is key to avoiding problems

Tempesta Media is a managed services provider of custom original content for digital agencies, PR firms, and enterprises, staffed by more than 16,000 professional writers with backgrounds across more than 50 different industries. The company provides an exclusive outsourced content suite that gives you access to new and unique content creation abilities such as Simple Social Share™ and Branded Writer™ program.

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Article Sources