How to Plan for a Softening Economy: 7 Ways to Optimize Your Business

These days, economic forecasts fluctuate wildly. Experts often contradict each other, but one thing is clear: While we may not know we're headed for a recession or a soft landing, the economy is definitely not moving as fast as it was a year or two ago. In circumstances like these running lean operations can make all the difference for long-term success and resilience.  

This article outlines seven strategies for optimizing your business, whether you're navigating uncertain waters or preparing for future challenges. 

#1 Evaluate and Optimize Headcount 

Your team is likely your largest expense. That makes it all the more important to optimize. But this process requires a thoughtful, data-driven approach rather than arbitrary cost-cutting if you want to succeed.  

Start by setting clear performance metrics for each role in your organization. These metrics should be tailored to the specific responsibilities of each position and align with your company's overall goals.  

Here are some examples of relevant performance metrics for different roles: 

With these metrics in place, implement regular performance reviews. Don't wait for annual assessments; conduct quarterly check-ins to address issues early and recognize top performers. This ongoing dialogue helps maintain alignment between employee performance and company goals. 

For example, a SaaS company might discover during a quarterly review that one of their sales representatives consistently exceeds their quota but has a lower customer retention rate compared to their peers. This insight could lead to additional training on relationship management or a reassessment of the types of clients this representative is targeting.  

For sales teams, consider implementing an annual refresh. Sales performance is often the most straightforward to measure, making it easier to identify top performers and those who may need additional support or reassignment.  

The goal of this process is not just to cut costs, but also to create a lean, efficient team that drives your company's success. Every decision should be backed by data and aligned with your long-term objectives. 

With these metrics in place, implement regular performance reviews. Don't wait for annual assessments; conduct quarterly check-ins to address issues early and recognize top performers. This ongoing dialogue helps maintain alignment between employee performance and company goals. 

For example, a SaaS company might discover during a quarterly review that one of their sales representatives consistently exceeds their quota but has a lower customer retention rate compared to their peers. This insight could lead to additional training on relationship management or a reassessment of the types of clients this representative is targeting.  

For sales teams, consider implementing an annual refresh. Sales performance is often the most straightforward to measure, making it easier to identify top performers and those who may need additional support or reassignment.  

The goal of this process is not just to cut costs, but also to create a lean, efficient team that drives your company's success. Every decision should be backed by data and aligned with your long-term objectives. 

#2 Review Product Development Priorities

In a well-run business, every development effort should have a clear purpose and potential return on investment. Start by aligning your product roadmap with customer needs and market opportunities. When evaluating product development priorities, ask yourself: 

• • Why are we building this feature or product? 

• • How does it contribute to customer retention or acquisition? 

• • What's the expected impact on revenue? 

• • Are we adding features because we need them to retain customers or because we've lost customers who requested these additions? 

Understanding the "why" behind your development efforts is crucial for maintaining a lean operation. While it's important to keep your software fresh to retain customers, knowing why you're developing each feature or product is essential.  

For instance, if you're leading a software company and considering developing a new product, you'd need to assess customer demand, potential revenue impact, development costs, and how it fits into your overall product strategy.  

This approach ensures that development efforts are focused on initiatives that will drive the most value for the business and its customers. 

#3 Assess Software Expenses and Subscriptions

Software costs can quickly accumulate, often without proportional returns. Implement a regular audit of your tech stack to ensure you're getting value from every tool.  

To conduct a basic software audit: 

1. List all subscriptions and licenses you have
2. Identify the purpose and primary users of each tool
3. Calculate the total cost (including hidden costs like training or integration)
4. Evaluate the tool’s usage and impact on business operations
5. Explore alternative solutions or consolidation opportunities where possible 

For example, if you're paying for multiple project management tools across different departments, you might consolidate to a single, company-wide solution and potentially save thousands of dollars annually while improving cross-team collaboration.  

The goal isn't just to cut costs on tools your team no longer uses, but also to ensure you're getting maximum value from your software investments. Regular audits can help you identify underutilized tools, negotiate better rates with vendors, and explore more cost-effective alternatives. 

#4 Focus on Customer Retention

Once people start tightening their metaphorical belts, retaining customers becomes even more important than acquiring new ones.  

Plan ahead for situations like these by laying out a robust customer retention strategy: 

• • Have regular check-ins with customers to ensure their needs are being met
  • Establish proactive issue resolution and support processes
  • Design onboarding processes that ensure customers get the most value from your product or service 

Sharpen this strategy by analyzing churn patterns to identify common issues leading to cancellations. Then, use what you learn to improve your product, service offerings, and customer retention strategy accordingly.  

For example, if you notice that customers who don't fully adopt certain features of your product are more likely to churn, you might develop targeted training materials or adjust your onboarding process to emphasize these features. This proactive approach could significantly improve your retention rates.

#5 Build and Stress-Test Financial Models

Robust financial planning is essential for navigating economic uncertainties. Develop detailed financial models that account for best-case scenarios, worst-case scenarios, and other likely outcomes.  

When building your financial models, consider: 

• • Changes in customer acquisition rates
  • Potential increases in churn
  • Fluctuations in operational costs
  • Delays in accounts receivable 

Regularly update and adjust your financial models as market conditions change or new data becomes available. This ongoing process will help you make informed decisions and quickly adapt to changing circumstances.  

If you’re leading a post Series A startup with venture funding, for example, you might create three financial models: an optimistic scenario with 300% year-over-year revenue growth, a realistic scenario with 100% growth, and a pessimistic scenario with 50% growth. By planning for each scenario, you can understand the potential repercussions of each scenario on your burn rate and cash flow, then develop contingency plans to account for them. 

#6 Diversify Revenue Streams

Relying too heavily on a small number of customers or a single product line can leave your business vulnerable to market shifts. For instance, if one customer accounts for 25% of your revenue, losing them could significantly impact your financial stability.  

To mitigate this risk, consider diversifying your revenue streams. For example: 

• • Expand your customer base into different industries or market segments. If your company primarily serves the retail sector, explore opportunities in healthcare or education. This not only spreads risk but also opens up new avenues for growth.
  • Develop complementary products or services that enhance your existing offerings. For example, if you provide a software solution, adding features that cater to specific customer needs can increase satisfaction and drive additional sales.
  • Explore partnerships with companies that offer complementary products. Collaborating can help you reach new customers without significant investment. For instance, if you have a fitness app, partnering with a health food company could create bundled offerings that appeal to both customer bases.
  • Consider geographic expansion if it aligns with your business model. If you’re currently focused on a local market, investigate opportunities in neighboring regions or countries where demand for your product exists.  

Diversification not only protects against market fluctuations but also positions your company for sustainable growth in various economic conditions. Remember to pursue diversification strategically—focus on opportunities that leverage your existing strengths and provide meaningful growth potential. 

#7 Monitor Key Financial Metrics

Understanding and regularly reviewing critical financial metrics is crucial for maintaining a lean operation. While specific metrics may vary by industry, here are some generally important ones to track:  

• Cash Flow Statement: Pay close attention to cash flow generated from (or used in) operations, as it provides insight into your business's sustainability.
• Gross Margin: This metric helps you understand the profitability of your core business operations. Ensure you're including all relevant costs when calculating this figure.
• Customer Acquisition Cost (CAC): Regularly calculate and analyze your CAC by dividing total sales and marketing expenses by the number of new customers acquired. Compare this to the lifetime value of your customers to ensure a healthy return on investment.
• Accounts Receivable and Payable Management: Monitor your Days Sales Outstanding (DSO) to ensure timely collection from customers. Similarly, manage your accounts payable strategically to maintain good relationships with vendors while optimizing cash flow. Consider adopting accounts payable automation solutions to streamline this process. 

By implementing these strategies and regularly reviewing these metrics, you'll be better positioned to navigate economic uncertainties and capitalize on opportunities as they arise. Remember, the goal is to build a sustainable business that can thrive in any economic climate. 

Learn More: 8 Critical Financial Metrics for SaaS Businesses.

Prep For Any Economic Scenario with G-Squared Partners

Running a lean, cost-efficient business isn't just about cutting costs—it's about creating a more resilient and adaptable business. By planning ahead, you'll be better positioned to navigate economic uncertainties and capitalize on opportunities as they arise.  

Your goal as a leader should be to build a sustainable business that can thrive regardless of economic conditions. If you need expert guidance in implementing these strategies or want to ensure your financial operations are optimized for success, G-Squared Partners is here to help. We can provide the insights and support you need to run a lean, efficient operation that's ready for any economic challenge. 

Contact us today to learn more about how we can help your business improve its financial management and performance.