With inflation at around 3.5%, many small business owners are feeling the pressure. As costs rise, profit margins shrink, so owners must act to keep their businesses profitable.
According to the Bureau of Labor Statistics, high inflation rates are due to large increases in food, housing prices, and gasoline prices. Rising energy prices, supply chain disruptions, and labor shortages are increasing expenses for business owners. What can small businesses do as costs increase significantly? The Better Business Bureau recommends the following to minimize the impact of inflation on your business:
How small businesses can deal with inflation
• Reduce expenses.
Be conscious of how your company uses money. This means you need to review your current spending and determine whether it aligns with your strategy. If your employees waste office supplies or your delivery drivers take the scenic route, address the issue. If your online advertising budget isn’t generating revenue, make adjustments. Cancel products or services you don’t use.
• Get the supplies you need
If you have an item you know you’ll use next year, buy it now if possible. You can receive volume discounts and be immune to future price increases, allowing you to avoid passing cost increases on to your customers.
• There are multiple suppliers
Having a single supplier for all the items your business needs makes procurement easier. However, having multiple suppliers gives you options if what you need isn’t available or the price goes up.
• Rate products and services
Identify which products and services are most profitable. Keep in mind that consumers may be open to cheaper options to fit their budget. You may also want to pay more for items and services that make stressful times more manageable. Consider temporarily reducing services or expenses to focus on producing the best results.
• Raise prices wisely
If you need to raise prices to compensate for inflation, do so wisely. Don’t raise your prices so much that many customers buy from your competitors. Instead, raise prices just enough to offset the effects of inflation and ensure profitability for small businesses. Don’t be sneaky about your pricing either. Don’t rely on drip pricing or hidden fees. Instead, be transparent. Inform your customers about the increase and make sure they understand the reason.
• Prioritize customer service
When consumers know you value their satisfaction, they’re more likely to do business with you, even if you raise the price. Don’t skimp on service due to lack of staff. If you don’t have the budget to hire a full-time employee, look for freelancers or part-time employees.
• Use technology
Artificial intelligence, automation, and customer self-service options can reduce costs and relieve existing staff in an already tight labor market.
