After the longest-running bull market in the history of the stock market, economists and investors are beginning to worry that an economic recession may be around the corner. Multiple recession signals, including a yield curve inversion in the bond market, suggest an economic slowdown within the next several months—and that’s not even considering the potential effects of the looming trade war and other points of international turmoil.
On some level, it’s pointless to worry too much about a recession that hasn’t even happened yet, since economists are always disagreeing with each other, and since recessions are a healthy element of a normal economic cycle. But if you’re running an online marketing business, and you’re reading about the very real possibility of an economic recession, you might be concerned about your future.
How will online marketing businesses hold up when the next recession inevitably hits?
Economic Conditions and Marketing Budgets
The most important consideration is likely the impact of economic conditions on marketing budgets. In general, marketing and advertising budgets fluctuate in line with greater economic conditions. When businesses are flush with cash and business owners are optimistic about their futures, they tend to spend more on marketing, which has the potential to bring them even more growth. When cash flow is tighter and pessimism reigns, marketing budgets tend to decrease.
For online marketing businesses, this is concerning. Lower budgets across the board will decrease, meaning you’ll stand to lose clients (or deal with budget cuts).
However, there are two important points to note. First, business owners should consider marketing as an essential expense; unless you’re paying money to make your brand more visible and get in front of more clients, you aren’t going to experience any growth. According to online marketing company, SEO.co, “If your business is struggling to generate revenue, marketing should be one of your highest priorities—not the first line item you cut. The key is to spend that money wisely, focusing on strategies that yield the highest ROI. As long as your ROI is positive, marketing is a good investment.”
Second, not all businesses are equally affected by an economic recession. While tech companies and luxury product sellers are likely going to be devastated by broader economic losses, other industries like waste management, inexpensive retail options, and liquor distributors tend to do much better than average. Marketing agencies that cater to industries like these may actually benefit from an economic recession.
How Bad Will the Next Recession Be?
The severity of the effects of the next recession will depend on how steep the economic decline is and how long it lasts. The 2008 economic crisis is commonly cited as the worst recession in recent history, with major financial markets losing more than 30 percent of their total value. Still, this recession lasted only 18 months; if you would have held onto your investments for 2 years, you would have made all your money back and then some. By contrast, the Great Depression lasted for 4 years.
A sudden, unexpected drop in the market would be bad for online marketing businesses, but only temporarily; as long as they have a plan to cater to recession-proof businesses and ample cash reserves, they can easily make it through.
The more insidious culprit would be a slower, more prolonged recession. In this scenario, there wouldn’t be a stock market or housing market crash, per se, but rather a period of several years with stagnant growth or slow declines. Though not as conducive to sexy headlines, this type of recession has the potential to be more damaging overall.
So will the next recession be short and severe, or long and creeping? Opinions are divided, as you would expect. There are simply too many variables to say for sure. Analyses suggest that the stock market is currently overpriced, but not by a huge margin—so a severe drop would probably require a major political or economic event, like a major war or natural disaster, as an instigator. By contrast, a prolonged recession would likely be difficult to notice as it’s unfolding—but online marketing businesses would feel the pressure gradually, as their client base starts to reduce its spending.
Online marketing businesses are vulnerable to greater economic conditions, in part because companies are likely to cut or increase their marketing budgets in response to economic optimism or pessimism. That said, even in a recession, there are industries that thrive, and clever, resourceful online marketing businesses will find ways to appeal to those industries.
It’s inevitable that an economic recession will manifest, sooner or later, but it’s not clear when or how intense that recession will be. No matter what, businesses that are adaptable should have a good chance to flourish.