With the ebb and flow of the economy, inflation is bound to hit sometime. What do you as a business owner do when facing rising production costs? Here are some ways to confidently face this season of inflation.
1. Analyze Spending
While it may seem obvious to suggest you reduce discretionary, non-essential spending, here are a few tips you may not have thought of to help shrink your budget.
- Cut expenses when possible. Take the time to cancel any subscriptions not being used. Decide if you need office space full time or can you have more remote workers. Sharing office space is becoming a popular option.
- Renegotiate bills. It may be well worth your time to call your internet, cell phone and streaming providers to find out what deals they are willing to make you. Perhaps bundling to one provider would be a less expensive option.
- Cheaper supplier. While you don’t ever want to cut corners on your product or service, perhaps there is someone who provides the materials or services you need at a lower rate. Asking fellow business owners who they use and how much they are paying may help cut down on the time it takes to shop around.
- Stock up on raw materials now before prices increase even more. You may need to increase storage to handle the inventory. Anything you can buy today will be more expensive tomorrow.
- Reorganize debt. Transfer debt to low or zero interest cards. Pay down high interest cards right away or refinance them to a fixed lower-rate loan with a longer term, for instance, a Small Business Association Loan.
- Reassess marketing. The products or services that are well-established in the marketplace may not need those dollars to be spent marketing them.
2. Improve Efficiency
You’ve heard it said “Time is Money.” Here are some ways to reduce time and increase cash.
- Streamline operations. Eliminate redundant processes and jobs by automating them. These days there seems to be software to automate everything. And if there isn’t something that works for you, software developers are willing to write one for you. Some things that should be automated in your business: scheduling, order taking, billing, and collecting payments.
- Upskill employees. Those employees who have less than full plates can be trained to do more. Invest in who you have.
- Analyze cash operating cycle. Figure out how to minimize the time it takes between investing cash in inventory to recovering cash from customers to improve your cash flow.
3. Analyze Your Product/Service For The Most Profitability
The knee-jerk reaction to inflation may be to raise your prices. Give some of these strategies a try that may be more palatable for your customers.
- Consolidate suppliers. Check with your distributors to see if you can combine deliveries, change frequency of shipments, negotiate for volume discounts, or create longer term contracts.
- Remove unnecessary components to your product/service that do not add value without cutting corners. Perhaps there are elements that make your device fancy that you can eliminate without it affecting the functionality.
- Take advantage of “Shrinkflation.” Did you notice that Doritos took 5 chips out of each bag without reducing the price when they repacked in 2020? Figure out if you can take a pinch out of your product/service while retaining the same price.
- Unbundle grouped products into individual units sold at a higher price point. Sometimes consumers think they just don’t need that many but they’d be willing to purchase one at a higher rate.
- Offer bundles. On the other hand, sometimes you can bundle your products/services together to increase cash flow.
- Offer a subscription of your products/services. This is becoming a popular model from food to clothing. With this kind of system in place, you’d have a more predictable cash flow and you can anticipate your inventory needs.
- Identify the products/services that have the best ROI and get rid of others. This will streamline your focus for inventory and marketing.
4. Retention
It takes more money to get new people in the door than to keep what you have. Here are ways to maintain your labor force and your loyal consumers:
- Retain customers. Be transparent about why you are making the changes you are making. When you do have to increase prices, do it moderately. Everyone is experiencing inflation, they will understand. However, if you wait a year to make those changes, they may not remember or understand why. Create a loyalty rewards program to those customers who continue to purchase from you. Keep the integrity of your product; your customers want to know what they are getting.
- Retain employees. The labor shortage is being felt in every market. It’s important that you keep employees happy by being flexible and accommodating. Avoid cutting raises, limiting budgets, and reducing headcounts because the result will be lower morale and higher attrition. The cost to advertise, hire, train, onboard, and get a new person up to speed is too great right now and customer service will suffer in the meanwhile.
Click here to read more about what happens when inflation rises and how inflation affects a business.
