Many small business owners feel the squeeze, with the inflation rate hovering around 6%. When costs rise, profit margins shrink, and owners must act to keep their businesses profitable.
According to the Bureau of Labor Statistics, high inflation rates are driven by significant increases in food, shelter, and gas prices. Increased energy prices, supply chain disruptions, and labor shortages add to business owners’ expenses. With so many cost increases, what can small businesses do? Check out the following recommendations from the Better Business Bureau 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 waste office supplies or delivery drivers take the scenic route, address the issue. If your online advertising budget isn’t bringing revenue, make adjustments. Cancel unused products and services.
- 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 future price increases won’t impact you, so you can avoid passing on increased costs to your customers.
- Have multiple suppliers. Having one supplier for every item your company needs makes sourcing simple. But if you have multiple suppliers, you’ll have options if one can’t get you what you need or their prices spike.
- 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 ease their 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 customers to purchase from your competitors. Instead, raise your prices just enough to offset the impact of inflation and ensure you can keep your small business profitable. Also, don’t be sneaky about pricing. Don’t resort 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 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.
Written by Better Business Bureau. June 22, 2023.