I was printing my "Really Scary Budget" projection.
Manual and I went to lunch and decided that we should figure out what to do if we take a serious hit in the months ahead. After all, if the economy gets bad enough, we will see clients cutting back, cutting staff, etc. We figure our worst case scenario would be about a 30% overall reduction.
We know it won't be for March because there's a 30 day notice requirement, so we're good to go on that.
So here's what I did for hardware, software, and labor revenues:
Projecting the Big Dip
- Started with a very realistic March estimate, assuming no additional sales
- Projected we would make 95% of that in April, 95% of the April number in May, 95% of the May number in June, etc.
- That continued until September, where the estimate reached 70% of the March number
- Then projected 105% of the September number for October, 105% of the October number for November, and 105% of the November number for December
This created a year-long smack in the face.
Do I think that will happen? No.
Would I be foolish to assume it won't happen? Yes.
I live in California. We sell brackets to stabilize computer racks during earthquakes. But I live in Sacramento where we don't really have earthquakes. But I don't want to be the guy who has to explain that I didn't secure a rack in California!
This is similar. I don't want to explain to my wife that I didn't think the economy would affect OUR business.
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Many people -- Erick and Vlad among them -- think I'm overly optimistic about the economy. I smiled my way all the way from Dow 15,000 to Dow 8,000.
But I really, honestly believe that we make a great deal of our "luck" in business.
We are 100% managed service. So we can project quite a bit.
We have stepped UP our marketing instead of stepping down. We're in the middle of a Robin Robins campaign, and we've budgeted to keep plugging all year. We're not going to do three mailings and give up.
Now comes the hard part . . .
I finished cutting back all that revenue and printed the budget projection. I did NOT adjust expenses yet. So when a technician looked at the printout, he was quite alarmed.
Of course I labeled it "Really Scary Financials 2009," so that didn't help.
In that projection, there are four months in the middle with losses on the bottom line. Luckily, it's only a few thousand dollars and I could bankroll it. But I won't.
The next step is to project reductions in expenses in order to push through the dip with black on the bottom line. That will be difficult since we run pretty lean around here.
The exercise is interesting because it raised the question of why we don't cut those expenses all the time.
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Overall, I think we'll sign a few key clients and continue to grow this year.
One decent client (ten desktops) will dramatically ease the pain from the projected dip. Two will keep us growing. Three will make me tear up the really scary budget and just go back to the original projections.
Seth Godin has a good little book on how to recognize The Dip versus a major crisis.
I like being optimistic.
I think it helps my business.
But we also need to be prepared for the realities around us.
We're all going to go through the recession and come out the other end. We can let it happen to us or we can address it straight on and participate in our own fate.
Nothing has changed with my resolve to opt out of the recession. So far, we're not participating. It's been almost a year since we published our resolve not to participate.
But if we're affected, we need a game plan.
. . .
Now I have to get back to marketing!
While I do think you are an eternal optimist ;-) - I believe that of the 4 service provider groups I always discuss (see "The Best I.T. Service Delivery BOOK EVER"! at www.smbbooks.com), MSPs have the highest profit potential and will weather the economic downturn in much better shape than the rest.
This is due to several factors, including their ability to show value and cost savings to prospects and clients who are tightening their belts in a down economy.
I've posted a webinar titled "Increasing Service Delivery Revenues During Economic Downturns" on the MSPU website in which I detail strategies for all service provider groups, with 10 key takeaways for increasing revenues in 2009.
In my analysis MSPs ultimately win, due to their value-based sales philosophy, cost savings to their clients and the annuity-based nature of their service delivery model.
You can't say you've posted a free webinar and not give a link.
Do I have to beg you for it?
I could go looking for it, but you probably know where it is.
See what I have to do to get you to return my calls?ReplyDelete
1. Browse to www.mspu.us
2. Select the "Courses" tab at the top
3. Scroll to the second Webinar under "This Month's FREE Training"
4. Select "View" next to the Webinar titled "Maximizing Service Delivery Profits During Economic Downturns"
5. Select "Documents" next to the Webinar titled "Maximizing Service Delivery Profits During Economic Downturns" for my FREE white paper of the same name
6. Execute and improve profits!
Non-members of MSP University will need to quickly create a free basic membership for access to this and dozens of other free Webinars, forms, tools and collateral.
Thanks for the opportunity to ABP! ;-)
Welcome to the recession. Since we've had that discussion before, I'll start calling it a depression now. :)ReplyDelete
I'm actually a very optomistic person. We've already seen a 20% downturn. Across the board, in every industry our clients laid off 20% of their staff during November and December. That reduction hits us now.