Blog for Building Materials Companies

How to Deal with a Recession as a Building Materials Company

  |  Posted in Uncategorized

How to Deal with a Recession as a Building Materials Company

It’s the calm before the storm. Just when the market is starting to feel like it’s old self again, there’s talk of a recession.

I don’t have a crystal ball. I have no way of knowing how bad this recession will be, which industries will be hit the hardest or how long it’s going to last. I don’t even know if there will be a recession or if this is a false alarm.

But what I do know is that every single company should be prepared to handle a recession at all times. The market is unpredictable and the best way to succeed in the long run is to be ready for hard times.

Recessions can be bad news, but it is possible to come out the other side and continue to succeed. So, let’s talk about what building materials companies can do to survive economic downturns and be ready to thrive once the market picks up again.

In my experience, how you are affected by a recession is based on your mental attitude.

People who assume they have no control over how the recession will affect them, are just along for the ride. They have stopped being in charge of their future.

The best mental attitude I ever heard was from the CEO of a client, early in my career. He told me, “I hear there’s a recession, we’ve decided not to participate.”

This article is primarily aimed at company leaders. I will be sending an article in next few weeks that is focused on what sales and marketing people should do in a recession.

The Last Thing You Should Do When a Recession Hits

Recessions are completely predictable but they will always catch you off guard.

They’re predictable because recessions are part of the normal economic cycle. It’s basically how the economy rebalances itself. Because of that, recessions will happen fairly regularly and any company that has been around long enough will have to weather a few.

They will still catch you off guard, however. By the time economists sense one coming, it means it’s here already. Each recession is also unique. They are triggered by different events, they affect some sectors more than others and they can have ripple effects that are almost impossible to predict.

To see what I mean, just take a look at the primary causes of the last five major US recessions:

  • 1980: The Fed raises interest rates to combat inflation
  • 1990: The 1989 savings and loan crisis
  • 2001: The dot-com bubble burst
  • 2008: The subprime mortgage crisis
  • 2020: The pandemic

Not exactly a consistent pattern.

If there’s one thing every recession has in common, however, it’s panic. Very few people stay calm during these downturns. And who can blame them? Budgets shrink. Sales start drying up. Reliable customers close up shop. It’s not easy to keep your cool under those conditions.

Well, it might not be easy, but it’s critical. There are a lot of things you should do when entering a recession – going into panic mode isn’t one of them.

Panic is what drives company leaders into budget-cutting frenzies. They slash every expense they can find, lay off every employee they deem inessential and pull back on every investment they had planned.

You may need to make some cuts during a recession, but there’s a world of difference between trimming expenses and going so far that you’re cutting corners. One will help your business stay afloat, the other might sink it.

If you take only one piece of advice from this, it should be this one. Don’t panic. Keep your focus on making smart moves, not desperate ones.

A recession is an obstacle. A big one, yes, but one that you can overcome if you take the right approach. Remember those five recessions we’ve had since 1980? Companies of every size made it through each of them, and plenty survived all five and are still going strong.

You can get through the next one as well. And like every other challenge, great preparation will be the key to handling it well.

Preparing Your Building Materials Company for the Recession

1. Diversify Your Income Streams

If you take a good, hard look at where your income is coming from, you might see something frightening. Many companies rely on a handful of big customers for their continued success. Losing just two or three of those customers can be enough for them to seriously suffer or even go under.

If that’s the case with your company, you need to start expanding your sources of revenue. Relying on a few customers to keep you afloat makes your company precarious even when the market is strong. During a recession, it’s just asking for trouble.

How you diversify will depend on your exact situation, but here are a few suggestions:

  • Stop ignoring smaller customers. Having 10% of your revenue coming from ten customers can be more sustainable than getting it from one big buyer. If you lose two of those small customers, you might still retain 8% of that total revenue. If you lose one big customer, you lose it all.
  • Move into new territory. If there are any parts of North America you haven’t sold to yet, it’s time to start making inroads there. Major markets like Texas and New York are the obvious places to start. You can try wooing customers in smaller markets that don’t get as much attention from the big players. The Canadian market is bigger than you might realize, so take it seriously as well.
  • Branch out into other types of construction. Specializing your sales efforts is a good way to get focused and build expertise in a specific sector. But a recession isn’t the time to be picky. If you’re mostly selling in, say, residential new construction, you should consider moving into commercial construction or repair/remodel as well.

2. Trim Your Expenses

There’s a lot of waste in most companies. Ironically, you’ll often find the most waste at the most successful companies. Because they can afford to be wasteful, they don’t make it a top priority.

If we’re heading into a recession, you can’t afford to be wasteful. It’s time to push it up the priority list. Find the costs that have low returns and cut them to make your operating expenses more manageable.

Like I said above, it’s important to be smart about this. Cutting too aggressively will make your products or your services worse, which will end up costing you too many customers.

Personal finance experts like to draw a distinction between being cheap and being frugal. Being cheap means you refuse to pay for anything. Being frugal means you’re careful with your money and avoid spending it foolishly. That should be your goal when dealing with your expenses – be frugal and lean, not cheap.

3. Evaluate Your Customers

Recessions are hardest on companies who are in a weak financial position. Some of these companies won’t make it. Keep a close eye on the credit you grant your customers. Watch for customers who start taking longer to pay.

Some of your customers may get in trouble financially, file bankruptcy and cause a big loss for you.

4. Bank up Your Resources

After diversifying your income streams and trimming expenses, you have to decide what to do with the extra revenue you’re bringing it. You’ll be reinvesting it and building your business, but it’s a good idea to use some of it to build a cushion for your operations.

Lenders get stingy during a recession. Supplies can dry up. So, stock up on the materials you’ll need to keep production going and beef up your funds.

5. Pay Down Your Debt

If you’ve got debt, now is a good time to pay some of it down. Making your debt burden more manageable will keep you from being hit with high interest payments when you’re already stretched thin. Lowering your debt will also increase your chances of securing a loan, especially when lenders start being more careful and selective.

How to Survive and Thrive

1. Invest in Your Current Customers

It’s more expensive to get new customers than it is to keep or grow your existing ones. That’s especially true during a recession, since it will be even harder to convince cash-strapped companies to start buying from you.

Your odds of making it through a recession by acquiring enough new customers are slim. So, make sure you put extra resources in the ones you have. The more customers you can keep or even grow, the less you will be impacted by the downturn.

Make sure your sales team is doing everything they can to nurture those contracts. Keep your customer service strong and even consider investing more into it. Check in with them, find out how the recession is affecting them and see if you can do anything to make things easier for them.

Remember, your customer will be looking for ways to manage their budgets too. If you build loyalty and give them the help they need, you’re much less likely to be one of the expenses that wind up on their chopping block.

2. Look for Opportunities

You may have competitor’s who are at risk of going out of business. Be prepared to pursue their customers.

These competitors may also be ready to sell. Would acquiring them, be a smart move for you?

3. Focus on What You Do Best

What are your real money makers? Which products or services generate most of your revenue?

Whatever those are, put most of your sales and marketing efforts behind them. You’re already successful with them, which means they’ll be easier to sell. That will translate to higher returns, which is precisely what you need to stay afloat during the recession.

4. Renegotiate with Vendors

You’re not just a manufacturer or a supplier, you’re also a customer. You’re someone else’s source of income. They need your business and they might be willing to be a bit more flexible to keep it.

For the last two years many of your suppliers have been crazily raising prices. A recession may turn that around.

A recession is a good time to renegotiate the terms you have with your vendors. Can they do anything to ease your burdens? Can they offer you a discount on bigger orders or commitments? Is there a way to streamline your deliveries and have them pass those savings to you?

5. Keep Your Marketing Strong

Companies that feel desperate will sometimes practically shut their marketing down completely. They’ll work almost exclusively with their current customers and maybe throw in a few cold calls just to see if they can land a few new ones.

It’s tempting to shrink your marketing down to its bare bones, especially since it would make so much room in your budget. It’s also a mistake. Some of your customers will be making big changes to deal with the recession, including switching products and suppliers. You want to make sure you’re still reaching them when they’re making those major decisions.

Putting the squeeze on marketing will also affect your long-term success. Good marketing is a long game. You don’t usually convert customers the moment they hear about you. It takes time. You have to make yourself familiar to them so you come to mind when they face a problem your product could solve.

If you halt your marketing, you might not feel the pinch immediately. In the future, you’ll struggle to regain brand awareness and have to start at square one with potential customers.

6. Delegate

You need all hands on deck during a recession. Unfortunately, many company leaders feel like they have to steer the ship themselves. It’s a challenging time for the company so they feel a responsibility to guide everything.

Often, the best way to handle things is to let someone else do some of it. Instead of hoarding the responsibilities, delegate the less critical ones so you can put your efforts where they matter most. You should be focusing mostly on the problems only you can solve.

That might mean shifting responsibilities around and making sure every executive and manager knows exactly what they should be doing. It can mean using third-party companies to handle things like logistics or routine customer service issues. It can also mean bringing on consultants and experts to help you navigate challenges and make sure you’re using your resources as effectively as possible.

Come Out Stronger Than Ever

Preparing for a recession can be tough. Going through one is even harder. But the effort it takes to do it right will always pay off.

A recession affects everyone, but some companies always come out the other end stronger than before. That’s because all the things that will help you get through a recession will also help you build sustainable success.

Expanding your income streams, eliminating waste, building customer loyalty and focusing your efforts will always benefit you. During a recession, those things are urgent. After a recession, they will make your business thrive.

Whizard Summit 2022

What is the biggest challenge to your sales growth?

Contact me to discuss how I can help you grow your sales.

About The Author

I am the leading sales growth consultant in the building materials industry, I identify the blind spots that enable building materials companies to grow their sales and retain more customers.  As I am not an ad agency, my recommendations are focused on your sales growth and not my future income.

My mission is to help building materials companies be the preferred supplier of their customers and to turn those customers into their best salespeople. Contact me to discuss your situation.