Ways for Small Business Owners to Combat Inflation
Inflation has been in the news for several months, with good reason. From gas prices to groceries and much more, recent coverage has detailed some of how consumers are being impacted by inflation, both during the pandemic and currently. But what many of those stories and articles don’t mention is how the effects of inflation are felt by small business owners and entrepreneurs, and how their bottom line is affected by inflation as well.
Any small business that provides either products or services has likely seen its operating costs go up in step with the increased price of goods. Typical supplies such as chemicals, metals, construction materials, packaging, and more remain affected by higher prices and supply chain issues, although to varying degrees. But it’s not just the physical goods or raw materials that are seeing the effects of inflation; services such as internet and telephone, postage, business travel, subscriptions, and even software markets are feeling the impact of inflation as well. In addition, inflation can make it difficult for business owners to meet their labor costs, stock up on supplies, or even qualify for a line of credit to expand their companies (due to fluctuations in interest rates, for example).
Given the importance of inflation on the entire economy, we surveyed several UpCity partners and experts to get their advice on how small business owners can combat high inflation, secure their profit margins, and remain profitable even through difficult times. Whether advising entrepreneurs and small business owners to monitor their cash flow or identify opportunities for automation and ways to streamline, take a look at what our panel of business advisers recommends to keep you ahead of these shifts in the economy.
Inflation Advice for Entrepreneurs and Small Businesses
No matter what the inflation rate may be, our experts were quick to offer advice that falls under two significant categories–do cut costs, and don’t jump to price hikes. No doubt increasing the price of some of your products or services may be necessary, but blanket increases or wild fluctuations are a sure way to lose business and alienate customers who are also feeling the squeeze.
“Raising prices is not always the best way to combat inflation. People notice when you are constantly changing prices, and they wonder if they can get a better price. However, you can make edits to the service offerings, and create a list of ‘add-on’ options for the costlier services. And you can add in a more expensive service or product offering that bundles in additional options that appeal to customers and clients. This will help you cross-sell, and help you bring in more revenue. It’s important to periodically reevaluate your services and find the right price based on the value you are providing your clients. Take a deep breath, and don’t get shaken too easily.” – Irina Gedarevich, Founder and Marketing Consultant at eSEOspace
Of course, while your customers or clients might be feeling the effects of inflation, your business is as well. Times like these can offer a much-needed reminder for you to review your business expenses and identify the higher costs that are cutting into your margin. In addition, you may be able to find or negotiate lower prices for the supplies or services that are most valuable to your company.
“Cut excess spending. This is by far the easiest way to weather times of increased inflation. Identify expenses that are unnecessary and cut them immediately! This will generate huge savings if you do it regularly because those recurring charges for $50 each month start to add up quickly. As you review your expenses and expenditures, ask yourself, ‘will this spend generate a solid return or does it alleviate a huge pain point for my business?’ If the answer is no, then don’t spend those funds. Finally, stay positive and don’t be afraid to lean on other business owners for support. We are ALL in the same boat and I have found that others are willing to help and support.” – Robb Fahrion, Partner and Co-Founder of Flying V Group
It may seem obvious to be mindful of your expenditures during any period of high inflation, but just as with your individual subscriptions and streaming services, it can be easy to forget about where some of your business’s money is going each month. That’s why bookkeeping and regular audits came up time and again as we spoke with our experts about their advice during times when inflation rises.
“During a time of increased inflation, you want to audit your expenses to determine which of them may no longer be necessary for your business. Many small business owners have a few expenses they do not need to be putting out money toward, and an audit of your expenses will determine which ones these are.” – Ocean Hui, Accounting at Jeff Social Marketing
Speaking of audits, this situation also presents an opportunity to dive into your complete list of product or service offerings and evaluate where the majority of your revenue comes from.
“My top tips for small business owners looking to combat the effects of inflation are: 1. Break down your services/goods by profitability; and 2. Look at your marketing plan to make sure you are ‘planting apple trees and not just picking apples from someone else’s land.’ In the case of the first, most businesses find that 80/20 applies – 20% of your services/goods drive 80% of your profit. That means that now is the time to cut the unprofitable services/goods from your business and redouble your efforts on the most profitable As for the second, doubling down on your website, your email list, and your SEO is a better investment than just dumping money into outbound ads.” – Jennifer Christensen, CMO at Beacon Media+Marketing
Perhaps the overarching advice from our team of experts was this–focus your energies and efforts on “home base.” The biggest and best return for your time and energy will be on those efforts that are focused on your business; specifically, what do we offer that people want, how can we lower our costs, and what can we do to stand out amongst our competitors and within our industry or field.
“Competition is the cornerstone of business, but it puts a strain on your bottom line to fight competitors. My best tip to combat inflation is to determine what makes your business unique from the competition and lean into it. The less competition you face for a specific product or service, the more you can charge, helping your bottom line even in a time of heavy inflation. Many business owners think they can simply grit their teeth and barrel through the hard times. But there’s no way to know how long the difficult times might last, and that’s not how you grow as a business. It’s important to stay on top of the economic, supply chain, and productivity changes, then implement adjustments quickly as needed to maintain optimal efficiency.” – Asad Kausar, CEO of Dabaran Inc.
Transparency, Customers, And Employees–Be Honest, Talk About It
Savings accounts and rainy-day funds are always important in life, and especially important for businesses, too. But even more important than your cash on hand is your honesty and transparency. For both your customers and your employees, keeping them in the know about the overall financial situation (and the changes that you might need to make) will help them understand and accept the “why” when it comes to product or service availability, supply chain disruptions, and price increases or changes.
“I believe one of the best tools to share with your employees, clients, and customers is the Bureau of Labor Statistics CPI Inflation Calculator. Using this, you can make sure you’re on the same page about the inflation numbers from the start. Many of your employees will be hearing that inflation is at an all-time high, but showing them the actual data can help prevent confusion and incorrect data from mucking up your conversations. Most importantly, don’t pretend that you can ignore the topic. Your employees, clients, and customers know that inflation is affecting your small business. Rather than avoiding a challenging talk, leaning into the topic can show your stakeholders that you have a plan for tackling the problem, and will give them confidence in your ability to lead.” –Caitlin Cascade, Founder of Atlanta’s Social Media Superstars
Finally, staying connected with your customers is one of the best ways to keep your business relevant and even thriving during difficult economic times. Letting them know about shortages or changes in your product line, reminding them to check your app for specials or offers, and even offering a reward for referring new customers can help not only maintain customer demand but even contribute to long-term growth for your company.
“Being in regular contact with your customers allows you to find out how their needs are changing and evolving. They are the ones who know best what they need, so maintaining customer engagement is one of the best ways to prepare your business for the future. Customers are also your best referral source, and word of mouth is still the strongest lead-generation channel. So make sure to nurture that channel by making sure your customers are happy.” – Alexandria Spriggins, Lead Project Manager at Specter
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Expert Advice to Help Your Business Fight Inflation
These tips and recommendations are just the beginning of what our UpCity partners and contributors can offer to help your business remain stable and even successful despite rising inflation. There are dozens more areas to cover here, from company credit card usage and rewards to business loan advice, tips on navigating shortages, and virtually every facet of operating a company. If you are looking for resources and expertise to help strengthen your business and build for the future, reach out to our small business consulting experts here at UpCity to learn more about what they can help you achieve.