Recession warning flags are waving vigorously. The United States is experiencing inflation not seen in 42 years. Since June, the Federal Reserve raised interest rates three times by 75 basis points each time to curb it – the most significant increases seen in recent history. Existing home sales are falling, gas prices have peaked at record levels, and the index of consumer sentiment is plummeting. Economists are speculating that a recession is a high probability with some saying it is as high as 80 percent. Is sales growth even possible?
A Recession Defined
In a 1974 New York Times article, economist Julius Shiskin created some rules of thumb to define a recession, including two consecutive quarters of negative economic growth, measured by a country’s GDP. This became the most popular and often discussed indicator of a recession.
So, where are we currently? The U.S. Department of Commerce’s Bureau of Economic Analysis reported that GDP for the first quarter of 2022 was down 1.6% over the previous quarter and saw a 0.6 % decrease in the second quarter. As of this posting, the Federal Reserve Bank of Atlanta’s estimate for real GDP growth in the third quarter is up. However, this slight expansion doesn’t mean we can write off the possibility of a recession.
The National Bureau of Economic Research (NBER) is generally recognized as the authority for determining when a recession has begun and ended. The NBER includes a decline in economic activity in its definition of a recession but expands on it to include depth (level of decline), diffusion (how widespread), and duration (length of time). It defines a recession as “a significant decline in economic activity that is spread across the economy and that lasts more than a few months.” The NBER committee looks at more than GDP. Other influences include personal income, employment numbers, consumer spending, industrial production, and wholesale and retail sales. The committee doesn’t look at future projections or even what is happening today. They look at what has happened in the recent past. The problem is that you don’t know you are in a recession until you are in it.
The Impact on the Corrugated Industry
The issues boxmakers are facing today are being echoed across all industries. The surge of activity corrugated manufacturers experienced in the past two years, when the COVID-19 pandemic created a record number of online shoppers, is waning. Stimulus checks and advanced child tax credit checks put extra money in consumers’ pockets at a time when supply chains were backed up and manufacturing was struggling with making and shipping products. The increase in demand and decrease in supply contributed in part to the inflation issue.
But now, as inflation soars, consumers are pulling back, and spending is decreasing. Retailers such as Walmart and Target are reporting excess inventories. Many in the corrugated industry have cleared backlogs and are getting back on even footing. Some have even taken the opportunity to expand and invest in new equipment, creating excess capacity. AICC reported that new orders and output contracted in June for the first time in two years. Contracting orders and excess capacity will create an opportunity for boxmakers to consider their plan of attack, particularly with the looming recession.
Turn Up Efforts to See Sales Growth
This is the time to turn up the dial on new sales efforts. You will need to be strategic to keep pace with your existing sales level or see growth. This means pursuing prospects with the potential for high annual spending and higher margins.
Now is the time to identify the types of opportunities and accounts that will give you the biggest bang for your buck. Think about annual spend, margins, monthly order size, geography, ease of work—anything that makes them a good fit.
Start with your customers, and find those you would like more of, the ones that are easy to work with, bring good margins, and meet your other criteria. Focus your efforts on these types of accounts.
Consider rating your current accounts as A, B, or C. The A’s are the prime accounts that meet your criteria for order mix and frequency, spend, etc. The B accounts are good opportunities—perhaps not perfect but worth pursuing. The C’s are what is left. They fall below the threshold you’ve set for providing good opportunities.
Getting the Most Out of Current Accounts
Evaluate your B’s and C’s to determine if they have the potential to move up to A’s and B’s, respectively. For those that meet most of your profile criteria, except for annual spend, evaluate them to see if there is potential. Look at what you estimate—or know—their annual spend to be versus what it is. Start with the ones with the most potential, and find out what additional needs they have and if they are open to your help. If your reduced share of a company’s business is because of something your company has done (e.g., unacceptable quality, shipping, customer service), you will need to make amends if there is a chance of growing it. Sometimes there is nothing you can do to increase your share of a customer’s packaging spend.
Once you begin seeing growth from your existing customer base and winning bids on the right type of new opportunities, it’s time to clean house. Any C accounts—those that take a lot of effort for little return—break up with them. They are hurting your bottom line. It may not be easy, but it is necessary. With a looming recession, it is necessary to ensure that you are optimizing all of your resources.
Targeting the right accounts is a step in the right direction, but without processes and a supporting sales model, to create a continuous flow through your pipeline, creating sales growth may be a struggle. Our previous article, “Using Modern Sales Techniques to Increase Efficiency and See Growth”, lays out a plan for redefining your sales infrastructure and processes to proactively attack the right type of accounts.
Surviving and Thriving in Tough Economic Times
Overarching goals for most businesses are growth, profitability, and survival, especially in tough economic times. Those who panic and start chasing every opportunity, no matter how low the margins or how bad a fit, will be stuck with low-margin, bad-fit customers when the crisis is over. This will not help you reach your goals for growth and profitability, and your company’s survivability may be on shaky ground. Taking a strategic approach to target the right types of opportunities will help you survive and maybe even thrive during these challenging times.