Inflation may be a global problem caused by factors such as labor shortages and supply chain disruptions, but it is also one that is particularly detrimental to small-business owners. While businesses of all sizes are seeing rising costs across the board for everything from raw ingredients to labor, these increasing costs often have a greater impact on the bottom line of small businesses that don’t have the capital to absorb the higher costs.
According to the Bureau of Labor Statistics, in 2021, the US faced the highest month-over-month inflation rates since 2008 and saw five of the 10 highest month-over-month inflation rates since 1990. While no one can predict how high inflation will rise, most economists agree that it will continue to rise throughout 2022. Rising inflation creates significant difficulties for small businesses; even beyond the immediate rise in costs. Inflation also influences decision-making in regard to hiring, spending, and other planning decisions.
Although inflation increases are beyond the control of business owners, there are inflation-fighting strategies for small businesses that every business leader should know. Safeguard can help business leaders navigate their businesses through 2022′s inflationary environment, achieving maximum productivity and driving long-term business success.
What is inflation?
Inflation is a general increase in the price of goods and services or a fall in the value of money, reflecting an overall loss of purchasing power over time. One of the most familiar words in economics, inflation is often expressed as a percentage, measuring how much more expensive a set of goods and services has become over a certain period of time. Inflation is generally the result of too much demand and too few goods.
Strengthen Your Pricing Power
Pricing power refers to the ability of a company to get the price it deserves for the value it delivers and is generally determined by how unique or essential a product or service is to your customers. While deciding when to adjust your pricing is never easy, the more pricing power your business has, the easier it is to raise prices without reducing demand. In short, pricing power is often the difference between a company that succeeds and one that fails.
There are several ways that businesses can strengthen their pricing power, including:
- Identify what differentiates your business from the competition.
- Optimize your product range, consider diversifying your offerings, or offering a new range of products that give you higher margins.
- Target a new customer segment in your marketing strategies that is less sensitive to prices.
- Improve the uniqueness of your offering by bundling products or services or by including complimentary items, like warranties.
- Add variable pricing mechanisms or shorten your contract lengths.
- Invest in your customer experience, deepening customer relationships.
During an inflationary period, it is essential for businesses to take a hard look at their expenses, identifying what expenses they might be able to eliminate as well as expenses they can reduce. That starts by having a clear understanding of where money is spent and who spends it. Tracking expenses is the first step for reducing costs on overhead expenses such as rent, insurance, and utilities.
As business owners are finding it increasingly difficult to meet their business expenses, anything that’s not essential to business can be considered unnecessary spending and is a potential area to cut expenses, including unused equipment, capital improvements, unneeded technology, or energy usage. In addition, while some businesses may have long-range contracts which help initially insulate them against price increases, there might be other contracts that can be renegotiated to save money.
Eliminate Unnecessary Work
Cutting costs is only one component to managing this current economic environment. Improving productivity, and eliminating any unnecessary work, is also a key strategy for businesses looking to cut costs. To achieve maximum productivity, business leaders need to make sure employees are focusing on the right tasks at the right time, allowing them to meet deadlines, and preventing them from spending too much time on any one task. This involves evaluating existing processes, workflows, communication methods, and the work environment, looking for areas where you can make improvements.
Technology, automation, and outsourcing are primary ways for businesses to eliminate unnecessary work, more effectively leverage resources, and bring costs down. Calendaring automation, online collaboration tools, or outsourcing payroll are all ways that businesses can improve their efficiency, streamline processes, and save money.
No matter what industry you are in, rising inflation is something facing every business. At Safeguard, we have inflation-fighting strategies for small businesses and know that with the right products, services, and planning, your business can be successful moving forward. Your advisor will learn about your unique goals and then help you with personalized solutions that fit your business and help you stay ahead of the competition. Call 855.778.3124 to get started.
- Rising inflation creates significant difficulties for small businesses and can have a massive impact on the bottom line.
- Inflation-fighting strategies for small businesses include strengthening your pricing power, adjusting expenses, and eliminating unnecessary work.
- Businesses can use technology, automation, and outsourcing to more effectively leverage resources and bring costs down.
- Your Safeguard Advisor can help you be successful with the right products, services, and planning.