Effective Ways Small Business Owners Are Fighting Inflation
If you run or own a small business and feel the pinch of inflation, it is perhaps coming from the increasing price of services and goods across the country- like increased material and labor costs. Meanwhile, like many small businesses, you might also be struggling with unending supply chain disruptions and keep on feeling the lingering impacts of COVID-19. If your small business is already experiencing the pressure of inflation or if you are worried about what is coming, you are not alone.
According to the latest report from the United States Chamber of Commerce, handling inflation was the primary concern for small businesses in the first quarter of 2022. Information from the Bureau of Labor Statistics shows that the CPI or Consumer Price Index increased 7 percent between December 2020 and December 2021. That is the steepest year-over-year raise ever since 1981. Taking the cost of food as an example, prices rose by 6.3 percent, a considerably massive percentage increase compared to the 12-month augment of 3.9 percent in 2020.
How Inflation Affecting Small Business
Small businesses all over the country are already experiencing the impacts of inflation. They are faced with a challenging option, either pass the additional cost of expenditures onto their clients by increasing in price of their products or services or deal with lower profit. A lot of small businesses pass the additional cost of expenditures onto their customers.
Moreover, as the cost of living rises, people or consumers have fewer funds to spend, leading to lower sales for small businesses.
But, for small business owners out there, you don’t need to worry. There are particular techniques small business owners can use or implement to assist wade in increased expenses.
Concentrate on the Employee and Customer
It is expensive and harder to gain a client than to lose one; therefore, focusing on your past and existing customer base is vital.
Organic digital marketing needs little overhead. Referrals and word-of-mouth marketing also need zero overhead. If you are a small business owner, make these the top two marketing avenues.
Amid client service, always think about your employees or workers. Embrace hybrid and remote work whenever possible, and give high-quality health benefits and opportunities for development and upskilling. Provide considerable benefits to reward workers for their honest and loyal service.
Small businesses must also evaluate their benefits packages and salaries to those provided by their competition and trim down on any workers’ benefits, not in use.
When it comes down to it, recognition and verbal rewards don’t work; think of upping the pay recalibrations to quarterly.
Buying Supplies Utilizing Lines of Credit and In Advance
Material costs are changing fast, that small businesses have pricing quoted on each work. Before, small businesses used formulas and spreadsheets to get them close; however, today, even the formulas are speculation without having a precise quote on their material.
They also need to buy materials for a couple of months to lock in costs. If they don’t do this, they risk a considerable loss on the material prices between the purchase date and the quote date. Indeed, this leads to a cash flow issue, so they have been discussing and bargaining vendor credit terms on big jobs, billing for materials when possible, and utilizing lines of credit in order to cover the gaps.
Automate and Streamline
Automating and streamlining offerings and operations can assist small businesses in combating inflation. Automation software for businesses increases efficiency and, at the same time, reduces redundancy. A small business must look to invest in the latest technology which can handle time-intensive business operations and functions like inventory, customer relationships, payroll, distribution, sales, and accounting.
Some experts suggest re-engineering offerings, as well as value propositions utilizing a technique sometimes called shrinkflation. In this case, you would decrease product volume or size or substitute costly components of your item with those which are less costly, at the same time keeping the cost the same.
The significance of keeping the subtle balance of customer satisfaction and profit margin cannot be overstated. Once clients perceive a decline in value or service, it is too late to back down- sales are already affected.
Raise Price But Strike to Keep Your Customer Pleased and Satisfied with the Product or Service
The obvious and most common technique to fight inflation is to pass the cost to your clients by increasing prices. While this approach is not ideal, it is essential more than ever as sellers and prices of products sold rise for them in their pipeline. The key here is to balance this with inflationary forecastings, like how long inflation stays high and how long you can compromise on your margins without affecting client acquisition because of higher pricing. It’s a balance of keeping competitive with pricing, at the same time sustaining a lucrative business.
You can also cut expenses without affecting the value or superiority of the product or service you provide, like reducing the services you offer without affecting the experience of your client. Operating a small business during an inflation period is like driving a long train down a track. Speeding up too fast will cause the train to detach and lose cabins while slowing down quickly will cause the train cars to heap on one another. A smooth and proper balance of utilizing the techniques mentioned above will enable the train to keep on track.
Establish Joint Ventures
Small businesses which establish joint ventures will fare better during inflation compared to those that do not.
Well-planned, strategic joint ventures will develop and grow a small business of any type. You can use joint ventures for product development, marketing purposes as well as product optimization. Even one-time job joint ventures result in big savings in cost and resource sharing. Networking in your small business community is key to developing these partnerships.
Owners of small businesses can take heart, knowing this inflation is a short-term condition and will drop sooner or later. On the other hand, it will never totally go as inflation is a constant and is not always negative. As a matter of fact, when the economy dips, leaving an idle labor force as well as too many resources, a country may need inflation to urge it back to capacity.
Apply for a Business Loan
There is a saying that “You have to spend money to make money.” This is true if you want more capital in order to keep up with the demand of your customers. Almost 50 percent of small business owners surveyed have applied for a loan in the past months to deal with inflation. On the other hand, make sure you can sensibly pay off the loan; it is vital to utilize the money to invest in your business. You can contact GoKapital for more information about financing.
Reduce Costs and Inventory
Another effective way for small businesses to fight inflation is to decrease the size of the company’s overhead expenses and variable costs. Assess your expenses and figure out the cost each brings to the operation of the business. For some small businesses, decreasing inventory might make sense. While for some, moving the business to a cheaper location or decreasing marketing expenses can assist in easing the burden.
Assess the Risk Related to Supply Chain
Handling the risk of the supply chain is key to a thriving and successful business. Make sure to keep away from vulnerabilities like single supplier dependencies, materials that are hard and costly to store, long lead time suppliers, and many more. Rather, establish interchange supply chains and an accelerated supply technique, think of stockpiling vital supplies, and more.
For small business owners out there, you might get yourself struggling to come up with a technique that will assist your business keep competitive as expenses and cost rise without losing considerable market share. We are hoping that the strategies above can assist you in combating inflation and continue to strive in your venture.