Article by LinksManager.com Staff - © 2008, Reproduction without permission prohibited.

There's no question that the economy here in the U.S. is in a down phase and that the big losers so far have been major retailers, consumer electronics manufacturers, real estate agents, building contractors and other businesses which have their major roots sunk deep into brick and mortar.

Unfortunately and unavoidably, the malaise is spreading to the world of e-commerce. Google advertising earnings for the fourth quarter of 2007, for example, were well below most financial analysts' projections. And fourth quarter results for Google's largest competitor, Yahoo, were so disappointing the company's stock lost more than 25 percent of its value and triggered a hostile takeover bid by Microsoft.

To understand what this means to those of us laboring in the trenches of small company and family owned and operated e-commerce businesses, you have to reference back to Arthur Laffler, Ronald Reagan's economic guru and the architect of the trickle-down theory, which states that the bigger, more powerful, and richer giant, multinational corporations get, the more the middleclass and poverty stricken will prosper.

According to Laffler, some portion of the bounty at the top will eventually trickle down into everyone's rice bowl (to steal an expression from corporate America's favorite Communist trading partner). What Laffler didn't say is equally and obviously true, an economic slowdown that starts at the top will also inevitably trickle down to everyone.

If there is going to be a slump that effects your business, what should you do about it?

First, count your blessings. Specifically those related to operating in cyberspace instead of a customer-depleted mall or a ruinously over-priced office suite.

The first thing most brick-and-mortar businesses must do to survive hard times is lay off people and close facilities. CompUSA, for example, responded to a declining U.S. economy late last year by shuttering virtually all its stores, firing everyone who worked in them and abandoning the world of brick-and-mortar completely in favor of an online business model.

Other retailers (think Kmart) and service providers (think the airline industry) try to stay out of -- or recover from -- bankruptcy by massive layoffs, mergers and service reductions.

As an online small businessperson, you probably don't have to worry about laying off people or buying your way out of store or warehouse leases. Which is a very good thing, since that kind of cost cutting is not only expensive to implement, it negatively impacts a business's customer-service levels.

And customer-service reductions eventually lead to fewer customers and lost sales.

And fewer customers and less sales inevitably mean less cash flow.

And reduced cash flow is about the absolute worst thing that can happen to a business during a decline or depression. Which is why troubled businesses that resort to drastic price cutting during bad times so often fail. Their sales volume inevitable goes up, but their cash flow usually falls along with their profit margin. Sooner or later, usually sooner, incoming cash flow starts lagging behind operating expenses and the enterprise goes belly up.

This isn't to say that discounting isn't sometimes an excellent recession-time strategy. Though there are some exempt businesses (the practice of bankruptcy law, for example), recessions generally cause an imbalance in the law of supply and demand. Fewer customers creating less demand for products already in the pipeline create surplus supply that translates into a buyers' market. Under these conditions some price-cutting is inevitable, but it must be done intelligently. If you lose money on everything you sell in an attempt to boost volume, you'll go out of business that much sooner.

Another recessionary period mistake many brick-and-mortar and online businesspeople make is to cut their marketing, promotion and advertising efforts. You can see what a bad strategy this is just by doing some simple math.

Let's say you promote your business in four venues and during good times each venue generates 10 new customers a month. In hard times each venue only generates five. So you've gone from a marketing communications campaign that collected 40 new customers a month to one that's collecting 20. If you respond to the recession by eliminating two of those venues, you're down to only ten new customers a month ... a 75 percent decline.

The logic is irrefutable, the thinner the potential customer ranks get, the wider the net you have to cast to catch them. In other words, you should do more marketing during bust times than boom times. But doesn't marketing cost money? And isn't money exactly what most recession-bound businesses have least of?

Yes and no. TV, radio and newspaper ads cost money. Internet banners and pay-per-click programs cost money. Spam-mail blasts cost money. Popups and paid links and interstitials and opt-in campaigns and sponsorships cost money.

High-quality, relevant reciprocal links DO NOT cost money. They're not exactly free -- few things in business with real value are -- but they don't cost a cent. Reciprocal linking is nothing more or less than the latest, most high-tech version ever of the oldest form of commerce on earth, bartering. All you do is barter a link on your site for a link on someone else's compatible site. If you get 5,000 unique hits a month and your link partner gets the same, each of you will benefit by having your little ad (because links are really just a specialized form of advertising) seen by thousands of people at zero cost to either of you.

How is this better than pay per click? Let's say 5,000 people see your reciprocal link, 1,000 click on it and 100 buy a $20 product. You've sold $2,000 worth of goods with zero customer acquisition cost. Now let's look at the same numbers in a pay-per-click program. Five thousand impressions, 1,000 clicks at, say 50 cents each, 100 sales at $20. You've now sold $2,000 worth of goods with a $500 customer acquisition cost. Let's further say that your markup on those products is 40 percent ... for every $2000 sold, your gross profit is $800. With reciprocal linking driving sales, your net is also $800. With the pay-per-click model, your net has been cut by more than half to $300.

That's a significant difference, especially during an economic slowdown. And that's without taking pay-per-click's sky-high incidence of click-through fraud into account. Since no one is getting paid to click reciprocal links over and over, there's no motive for fraud.

Ethical, natural reciprocal links are also better than paid links because they don't have the search-engine penalty risks inherent in the latter. In fact, a quality natural reciprocal linking campaign - which means having a proper number of relevant links to and from high-quality websites living in good neighborhoods -- can have only one of two effects on your search engine rankings.

It can, if you're lucky, improve them because Googlebot and its cousins count all links, not just back links, or it can have no effect at all.

Good links, legitimately obtained and added to sites in accordance with Google and other search engine guidelines, cannot hurt your PageRank or return position. The search engines do not punish sites for following their guidelines and obeying their rules, they punish them for violating them.

Economical, effective, ethical and efficient. All excellent reasons for stepping up your reciprocal linking marketing campaign to help cope with economic downturns.

Here's one more: Reciprocal links are no more immune to the law of supply and demand than any other form of advertising and promotion. If you have a robust links page that produces X number of sales normally, you can count on it producing something less than X sales during a recession.

If you, like many other online and offline businesspeople, believe we are heading toward a period of slow or negative economic growth you'd do well to consider supercharging your marketing efforts with the best traffic builders money can't buy, reciprocal links.

For a wealth of information on streamlined procedures for finding link partners and setting up and managing an ethical, effective, search-engine-friendly linking program, visit the LinksManager/LinkPartners linking school.

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