Small businesses have been through a lot in the past couple of years. In 2020, the pandemic forced many businesses to close. In 2021, many small businesses faced hiring issues with The Great Resignation creating a hyper-competitive labor market. This year, inflation is causing problems for American entrepreneurs. One in three small businesses (33%) now rank inflation as the biggest challenge facing the small business community.
With prices rising, supply chain issues, and customers aware of inflation, small businesses have their work cut out for them this year. Here are some tips to help you offset inflation as a small business owner.
Raise your prices.
One of the most obvious ways to offset inflation as a small business owner and protect revenue is to increase your prices or adjust for inflation. This is also known as passing the cost of supplies and materials onto your customers. Many companies have already taken this action. According to a recent NFIB report, 40% of companies reported they would raise prices by 10% or more and 47% reported they would raise them anywhere from 4 to 9%. The biggest price increases are coming from the wholesale, construction, retail, and agriculture industries.
Raising prices across the board can harm your business more than help it. Instead, make strategic increases on the products that impact your margins most, or your most popular items or services. Customers are more likely to accept price hikes if they need or really want the product or service. You will also benefit more from price hikes to items that sell the most.
Customers are typically hyper focused on price. They will notice when there are price increases, especially if there are contracts involved. However, not all customers are as aware of exactly how much they are getting for a certain price.
Big brands exercise this all the time and refer to the practice as shrinkflation. This occurs when you maintain the same price but remove something from each package. For example, if you sell custom cookies and you typically sell 12 cookies for $50, you might consider selling 9 cookies for $50 to offset the cost of ingredients. If you provide a business service, you might reduce the number of hours you provide for a certain package.
One way to offset inflation is to stock up on products you need before prices increase further. If you can secure materials or ingredients you need at a reasonable cost or on sale, you should stock up to avoid paying more in the future. Prices increase all the time, even without inflation, so stocking up makes sense if you have the budget and the storage space.
Keep employees happy.
Employee retention is another key to keeping costs down. There is still a labor shortage for many industries, and salaries are going up with inflation. It’s much more cost-effective to keep current employees happy then to secure new ones. The cost of replacing an employee can range from one-half to two times the employee’s annual salary, according to Gallup. Having to train new employees will impact your ability to meet customer demand as well, making your inflation problem worse.
There are many ways to keep employees happy, but what motivates one employee isn’t necessary what motivates another. It’s important to sit down with employees or their managers to understand what motivates them and create a path to keeping them happy and engaged.
Inflation is impacting small businesses. There are ways that small business owners can offset the impact of inflation. You can increase prices on key items or services. You can provide less product or services for the same amount of money. You can stock up on inventory to secure lower prices for your materials. You can keep employees happy to avoid turnover.
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