Inflation and Small Business
Inflation is a common worry for business owners. There are many ways that small businesses can address inflation to reduce its impact.
Inflation is a common worry for business owners. It can cause substantial increases in wages and the cost of consumer product goods that can cut into margins and increase prices. Raw materials have also seen multiple price increases and supply chain issues continue to cause delays. 26% of small business owners have seen their costs rise by more than 20% since 2020. But there are many ways that small businesses can address inflation to reduce its impact on customer spending.
How to address inflation as a small business
Before you decide to raise prices, consider ways to lower your costs or streamline your operations.
- Cut expenses when and where possible.
- Downsize office space or employ a hybrid/remote work environment
- Consider substitute materials that may have lower costs
- Eliminate any products or services that aren’t being used
- If possible, stock up on supplies to avoid further price increases or supply chain issues.
- Apply for a business loan to invest back into your operation. This might help you with:
- Buying inventory in bulk to satisfy customer demand
- Ramping up marketing to attract new customers
- Purchasing technology or equipment that facilitates operations
Pricing Strategy During Inflation
Pricing your products and services during inflation can be tricky. When setting your prices during inflationary times, consider the following tips:
Should you announce a price increase?
Many small business owners feel a need to announce (and justify) their price increases to their customers, but this may not always be the best strategy. This can seem counter-intuitive to small businesses that have close relationships with their customers. It can be helpful to remember that when major corporations increase prices on consumer products, they rarely notify their customers and most of their customers don’t even bat an eye at the increase.
However, experts agree that there are some times when you may want to let (some of ) your customers know that your prices will be increasing. In general, you should briefly notify:
- Subscription holders
- Regulars with whom you have a relationship (i.e. you know them and they know you)
- Loyalty card holders
For all other customers, you usually don’t need to notify them that prices are increasing and you don’t need to justify the increase. When notifying your most loyal customers, experts recommend keeping it brief and upbeat; try not to apologize. Instead, focus on the continued value of your products and/or services and thank customers for their continued loyalty, patronage, and understanding.
To learn more about setting the right prices for your products and services, check out our pricing strategy article or webinar.
This article was powered by Global Atlantic Financial Services.