U.S. consumers are experiencing the most significant 12-month increase in prices since 1981, and many small business owners are feeling the pressure. With the inflation rate hovering around 8%, according to the Bureau of Labor Statistic’s Consumer Price Index, many small business owners are experiencing increased costs to conduct business and shrinking profit margins. Desperate to remain profitable, entrepreneurs are looking at how they can cut costs or raise prices without scaring off their customers.
High inflation rates are driven mainly by significant increases in food, shelter and gas prices. Increased energy prices, supply chain disruptions, and labor shortages add to a business owner’s expenses. With so many cost increases, what can small businesses do? BBB recommends the following to minimize the impact of inflation on your business.
Ways your small business can cope with inflation.
Reduce your expenses. Be intentional about where your business is spending its money. This means reviewing your current spending and determining if it aligns with your strategy. If employees are wasting office supplies or delivery drivers are taking the scenic route, address the issue. Be sure to assess the revenue being brought in by your online advertising strategy and make adjustments if it isn’t providing value.
Stock up on necessary supplies. If there are items you know you’ll use in the year ahead, buy as much as you can now. You may get bulk discounts, and you can minimize the impact of future price increases. Stocking up on supplies will allow you to avoid passing on increased costs to your customers in case prices continue to grow.
Have multiple suppliers. Having one supplier for every item your company needs makes sourcing simple and helps develop strong relationships with vendors. However, if you have numerous suppliers, you’ll have options if one can’t get you what you need or their prices increase.
Evaluate your products and services. Identify what products and services are the most profitable. Remember that consumers might be open to lower-priced options to maintain their own budget. They also may be interested in paying more for items and services that make a stressful time more manageable. Consider temporarily cutting services or expenses to better focus on what generates the best results.
Raise prices wisely. If you must raise your prices to compensate for inflation, do so wisely. Don’t increase your prices so much that it causes many of your customers to purchase from your competitors. Instead, raise your prices just enough to offset the impact of inflation and ensure that you can keep your small business profitable. Also, don’t be sneaky about pricing by resorting to drip pricing or hidden fees. Instead, be transparent. Let customers know about the increase and help them understand why.
Prioritize customer service. When consumers know you care about their satisfaction, they’re more likely to do business with you, even if you must raise prices. Don’t skimp on service by being understaffed. If you don’t have the budget for a full-time employee, look into freelancers and part-time staff.
Use technology. Artificial intelligence, automation and self-serve customer options can reduce costs and take pressure off existing staff in an already tight labor market. Take the time to research technology that you could implement in your business to help reduce costs and maximize efficiency.
