Inflation is expected to drop from 6.6% in 2023 to 4.3% in 2024, but it is still above pre-pandemic (2017–19) levels of about 3.5%. With increased costs continually fluctuating, small and medium business owners may struggle to sustain profitability and deliver quality products to their customers.
In fact, 54% of small business owners cite inflation as their top concern. As a business leader myself, I can relate to these challenges. Small- and medium-sized businesses (SMBs) are experiencing lower sales due to our high inflationary environment. With decreasing pricing power and elevated input costs, SMB profitability is impacted.
For leaders steering their businesses through this tumultuous economy, I would encourage you to focus on these five key strategies for reducing inflation’s impact:
Actively Manage Your Costs and Pricing
It’s crucial to know how much you are spending on business-related purchases and manage those costs diligently. During this economic cycle, being mindful not to overpay for necessary products or services, being vigilant, and planning your expenses can materially impact your bottom line.
Despite those efforts, your costs are likely to rise and if your customer prices stay the same, your margins will obviously get pinched, reducing the profitability of your business. With careful consideration and transparency, raising prices can be a necessary and reasonable strategy for a small business.
However, businesses should aim to do so responsibly, as raising prices too quickly and extremely could reduce business with customers, which also impacts profitability. Start by communicating any changes to your customers beforehand in a clear and transparent manner and emphasize any added value or benefits that may come with the price increase. Keep in mind that simultaneously offering alternative or lower-priced options can also be effective. Additionally, analyzing and adjusting pricing strategies periodically can ensure that your business remains competitive, while still growing and maintaining profitability.
Retain Talent
To avoid the costs associated with hiring and training new people, it’s always best to retain your top talent. While you can offer raises or additional benefits, it doesn’t always have to be about money.
Studies show that employees who feel undervalued and unappreciated tend to look for other employment. Your employees need to know that their contributions are essential and that your praise is sincere. To implement this in your workplace, focus on building a strong culture that fosters both personal and professional growth.
Publicly recognizing employees is a great way to show your appreciation and motivate your team. Try implementing programs like Employee of the Week or Month, which allows a special employee to be celebrated for their contributions by the entire company. Outstanding performers can also be given free perks as a reward for their hard work and dedication to the company and don’t forget to celebrate the micro victories. They’re all around if you look for them. It ensures that people’s work is seen and appreciated on a regular basis.
Hire Independent Contractors
You may want to consider evaluating lower-cost labor options, such as hiring independent contractors instead of employees. It is typical for a hired employee to receive wages and benefits in exchange for following the organization’s guidelines, whereas, a contractor is an independent worker who has more flexibility but does not receive benefits such as health insurance and paid time off.
Depending on the project you need to complete, it may be more cost-efficient to hire an independent contractor rather than a full-time employee so that you can scale up or down your capacity depending on the workload and duration of the project.
Rethink Marketing
Marketing is a critical driver of business growth. However, your marketing tactics may need to evolve as economic factors change. It’s important to evaluate your marketing strategy on a regular basis to ensure it’s producing a positive ROI and you are not wasting valuable investment resources.
For example, a print marketing tactic that worked a year ago may no longer be producing a quality return as your customers shifted to digital. Evaluating frequently and investing every marketing dollar wisely with a defined goal and expected return is vital to ensure you hit your overall growth goals while managing profitability.
Start by finding out how your audience searches for what it wants – in-store, on the internet from home, mobile, print, reviews, etc. Be sure you evaluate and refresh your marketing strategy to meet your customers where they are looking and evolve your approach to address your customer’s perceptions, pain points, and preferences. However, resist the urge to be reactive and change too often- make sure your updated marketing strategy remains aligned with your overall business plan, is measured, and is given enough time to succeed.
Buy Now, Pay Later
Buy now, pay later is a good way to attract new customers who may have held off on a purchase because of the cost. This option allows both the customer and the business to win: the customer can buy premium items and pay in installments, and the business doesn’t have to worry about losing a sale due to the overall cost being unaffordable. Early research also shows that customers are less likely to abandon their virtual shopping cart because they have the option of installment payments.
By focusing on these strategies, inflation can be less painful for you, your staff, and your customers. The essential part here is to proactively address the changing costs and payment processes to help minimize inflation’s impact and maintain your bottom line.
How are you going to combat the impacts of inflation?
David Sharp is the General Manager, Payments Solution, EverCommerce.
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