From ballooning borrowing costs to prompting a shift to results-based pricing, here are 12 answers to the questions, “How has inflation affected (or how is it affecting) your small business? How are you handling this?”
Raising Borrowing Costs
Inflation can cause small businesses to face higher borrowing costs, as lenders may demand higher interest rates to compensate for the loss in purchasing power over the life of the loan.
To manage the impact of inflation, small businesses can adjust their prices to maintain profitability, cut costs to offset higher expenses, seek alternative financing options, and monitor inflation trends to anticipate changes in costs and adjust their strategies accordingly.
By taking these steps, small businesses can mitigate the effects of inflation and continue to operate successfully in a changing economic environment.
Increasing Supplier Costs
As a SaaS provider, inflation has increased our supplier costs, which will, in turn, increase our prices to our customers. We have been proactive in managing this by monitoring and forecasting inflation rates, as well as anticipating any additional costs that may arise, to ensure we can keep our prices competitive.
We are also using a “cost plus” approach to ensure our margins remain as desired while absorbing any cost increases.
Reducing Employee Relations Expenses
I’ve always splurged on employee relations. I view my team as my company’s most valuable asset, and as such, I don’t hold back with showering them with gift cards, spa day certificates, excursions when they go on vacation, and more.
However, inflation has been killing my employee relations budget for the last year or so. I allocate a certain amount every month for these employee expenses, and my dollars just don’t go as far as they used to.
I could increase the budget for employee relations, but the issue is that inflation has outpaced our revenue gains, and increases in other expenses like rent, utilities, and vendor rates have impacted it. Given that employee relations is a luxury expense, it’s been the one to hit the chopping block relative to other expenses.
Forcing Us to Re-evaluate Our Partners
The cost of assisted living has been steadily increasing by just under 5% in recent years. As the price for senior care increases, our clients are becoming warier of the financial commitment modern healthcare demands.
In the healthcare industry, you learn quickly that your clients are the gauge of your success. So, considering their concerns, we’ve re-assessed the centers we partner with. We want to ensure that the centers we promote offer the best conditions for seniors at the most affordable prices.
By helping our clients stay afloat, we’re also guaranteeing the success and well-being of our company.
Using Automation to Combat Inflation
Inflation has led to an increase in some of our expenses, as suppliers work to manage higher costs. Rather than reflect these costs on the consumer, we’re leaning on automation to help us reduce costs elsewhere to absorb them.
It’s important to us that we work to explore any and every viable option to reduce our costs before we resort to increasing prices for our clients on a few levels. We know many of our clients will struggle with their own expenses, and we want to relieve them as much as possible. And, as a small business, it’s crucial to remain price competitive or face losing a sizeable chunk of our market share.
Consumers Perceiving their Purchases Differently
Inflation can be quite impactful for traditional and online businesses alike. As we’re dealing in affiliate marketing on financial tools, we’re more likely to face the wrath of inflation because of a change in consumer buying behavior in these unprecedented times.
Usually, consumer buying behavior turns the tide and decreases the purchasing power of consumers. Now consumers are more likely to stock up on necessities like food, clothes, groceries, etc. instead of financial products that we market. And with inflation, the Federal Reserve changes its interest rates as well, which again affects our strategies.
Our company is handling inflation by stressing more performance-based pay and rewarding employees more for the results they are bringing. During the inflationary period, creating an omnichannel content presence and building authority in the niche is instrumental for us.
Rising Customer Expectations
Inflation poses the greatest challenge to small businesses. As selling prices rise, consumers are demanding quality experiences, given that they are paying more. They want to feel that the experience they receive is worth the higher price they’re paying.
In addition, they are now more cautious about spending money and avoid small businesses they feel could “burn” them. Before purchasing from you, customers are now inspecting your customer reviews online, return policies, warranties, and more. We are handling this through greater customer experience.
A simple way we are working is by building trust and emphasizing quality over price. This is enabling us to put a face to our business (trust) and illustrate value for money at the same time.
Growing Transaction Costs in Crypto Trading
Inflation causes an increase in the transaction costs associated with cryptocurrency trading. This happens because when the supply of money in the traditional banking system decreases in value because of inflation, people turn to cryptocurrencies as an alternative investment.
Bitcoin’s transaction fees are determined by supply and demand, with fees increasing when there is high demand for transaction processing on the network. As a result, when inflation erodes the value of fiat currency, people switch to cryptocurrencies like Bitcoin as an alternative store of value, leading to increased demand and higher transaction costs.
Matching Promotion Efforts to Rising Demand
With the prices of goods and services increasing, customers are more conscious than ever about saving money. This has increased interest in our services, which is great news. We have seen a surge in coupon downloads, indicating a higher demand for our platform.
To capitalize on this demand, we have been doing more marketing and promotional activities to spread the word about CouponChief and drive more traffic to our site. We have also actively engaged with our customers through social media platforms to understand their needs and expectations and improve our services.
We are also liaising with businesses to ensure that our coupons are up-to-date. Ultimately, we want to ensure customers get the best deals at CouponChief.
Reducing Our Monthly Expenses
To prepare for the recession, we’ve focused on reducing our expenses in all ways. We’ve taken this approach to most of our expense reductions—not canceling services outright, but rather going down to a lower service tier.
One way that we’ve done this is to drop to lower plans on our software subscriptions. This way we still get the value from using those apps, rather than canceling them altogether. While sometimes this amounts to a bit more manual work, the savings outweigh the additional time needed.
Skyrocketing Operational Costs
The post-pandemic era brought about new workplaces, which included navigating into a hybrid workplace model. However, since my business requires constant real-life interaction, my employees need to report to work at least four days a week.
With inflation rearing its ugly head, it is the operational costs that have been seriously affected by rising prices.
What I do to address this is to reduce work days from four days to three days. While it was costly at first, I automated some of my business processes. This way, I can reduce repetitive jobs and keep only the ones that matter to my business.
Pricing Our Services by Results
In the last year, inflation has hit my small business hard. We normally price our services competitively, but rising costs have forced us to make adjustments in our pricing. We don’t want to raise prices too much for our customers and risk losing their business, so we have shifted instead from a fixed payment system to a result-based payment system so that they are only paying for what they need.
We’ve also taken steps to ensure that our overhead costs remain as low as possible and passed those savings on to our customers. We’re doing all that we can to keep our prices competitive while not sacrificing the quality of our service.
Brett Farmiloe is the founder of Terkel, a Q&A platform that connects brands with expert insights.