In the first quarter of 2022, the real GDP (gross domestic product) declined by an average rate of 1.6%. The situation improved slightly in the second quarter with the GDP decline coming down to an average of 0.9%.
The signs – two consecutive quarters with declining real GDP – point towards an impending recession. But that’s not a law. Just a rule of thumb.
And official agencies have their tongues tied. For now, at least, they are saying the recession isn’t here.
Politicians and economic pundits don’t even see a recession coming, though.
Sources suggest that as of July 2022, parameters other than the real GDP are all in the green. These factors include real personal income (including fund transfers), employment, business sales, and industrial production.
Since December 2021,
That makes for a strong argument against a recession.
Now, the economy isn’t in very good health, but a recession definitely isn’t on the cards anytime soon.
But no matter whether a recession is around the corner or not, agencies need to plan for it.
Primarily because even if the recession isn’t close, it is an inevitable part of the economic cycle. It will eventually happen. And when it does, you’d be happy you planned for it in advance.
But recession planning is no child’s play. It comes with its own set of costs and challenges.
And many (if not all) agency decision-makers feel that planning for a recession that isn’t even in sight is unwarranted.
History tells us otherwise.
And if we really think about it with an objective mind, recession planning will pay off for agencies. With or without a recession. And especially without one.
So let’s take a close look at the specifics of how that’s true.
Reason 1: Recessions = Marketing budget cuts.
Recession planning helps avoid the severe consequences of cutting down on marketing and ad spending.
When the market takes a nosedive, the first step that key decision-makers take is to cut the marketing budget.
During the Great Recession between 2007 to 2009, the marketing and advertising industry saw a 13% decline in the US.
For agencies (especially those involved in traditional or digital marketing), this is a double-edged sword.
On one hand, this means less business from clients.
And two, cutting down their own marketing budgets also creates long-term negative impacts.
Thus, cutting the marketing budget during a recession is counterintuitive.
It takes several years to recover from the brand awareness loss that materializes because of halted marketing activities.
In fact, we have historical evidence from the recessions that happened in the past 50 years. Further, data shows that marketing during a recession can actually help.
Let’s take the recession of 2001, for example, after the dot-com bubble burst. Brands that maintained their marketing efforts saw 2.5X more sales than those that cut down on the marketing budget.
And logically enough, marketing budget cuts pull down your ability to bring in new customers or retain existing customers. Both of which, are necessary to stay afloat during an economic downturn.
If you plan for a recession today:
- You won’t have to cut down marketing budgets tomorrow.
- You can minimize the marketing cost burden for the future by optimizing strategies and channels today.
- Your marketing efforts today will pay off in the future, amidst a recession, when you need them the most.
Reason 2: Recession planning includes efficiency enhancements.
In the absence of a recession, efficiency improvements will lead to higher profits.
Recession planning, among other things, includes efficiency enhancements. Agencies find workable solutions for automating tasks and only using human resources for tasks like planning, strategizing, and monitoring.
When your systems have strengthened and you have found ways to maximize output even with minimal human effort, you are basically making sure that when the demand rises, you can serve more customers. Without pushing your employees over the edge of exhaustion. And without having to haphazardly onboard more manpower at a higher wage rate.
That is the recipe for profit-making if the recession doesn’t come and the economy takes an upward turn.
Reason 3: Cost cutting is a key factor in recession planning.
If there is a recession, this will help agencies survive.
If there isn’t one, lower costs will help agencies thrive.
The flip side of efficiency enhancement is cost cutting. While planning for an economic upheaval, agencies revisit their process and eliminate redundancies. This leads to a cost cut.
During recessions, as expected, this helps them survive on a shoestring budget.
But in stable and upwards market conditions, this means that these agencies will have a definitive advantage.
Either they can maximize profit margins and take home more greens than the competitors. Or they can cut down on prices and broaden their market shares.
Some might call it a pessimist’s pastime, but planning for a recession can definitely help agencies.
- If there is a recession, preemptive planning will save agencies from the long-term and widespread impact of cutting marketing and advertising budgets.
- If there isn’t a recession, the planning will only have made the agencies more cost-effective and efficient in operations, which will boost revenues during a boom.
Either way, the benefits far outweigh the tiny trouble of planning for a recession today.
Partnering with recession-proof agencies – A win-win situation
Whether you have an agency business or not, partnering with other agencies that have done their recession planning is a scenario with no negatives.
For one, it is unlikely that their support or quality of service will waver during troubled times. Also, during economic turbulence, recession-proof agencies will be your most cost-effective bets.
All-in-all, if you partner with an agency that has planned for a recession or you plan for a recession within your agency, you’d be in the sweet spot whether there is a recession or not.
So while economic gurus and market watchers sit on the edge about recession or no recession, you should start planning for the worst today.