How to Fight Inflation as a Small Business

How Small Businesses Fight Inflation

Posted on:
Aug 15, 2022

According to the US Bureau of Labor Statistics, the annual inflation rate in the country hit 9.1% in June 2022, putting inflation at a four-decade high. This unprecedented inflation level has severely affected the operations of small businesses, who are employing several strategies to fight back and keep their heads above water.  

The negative impacts of inflation 

Inflation has several negative impacts on small businesses, including: 

  • Higher production costs: Inflation raises the prices of supplies and labor, leading to an increase in operational costs. If left unchecked, it narrows the company’s profit margin and reduces its profitability.  
  • Supply chain disruptions: Transportation plays a key role in supply chain fluidity. However, rising gas prices due to inflation reduce this fluidity and disrupt a business’s supply chain. These disruptions can lead to production delays, a decline in customer satisfaction, and ultimately, lower revenue generation for businesses.  

Decreased consumer spending: Inflation lowers the purchasing power of consumers and forces them to cut back on spending. When customers reduce the number of products or services they purchase, it causes a decrease in the revenue of businesses that rely on consumer spending.  

How small business owners are fighting back against inflation

With inflation on the rise, small business owners are employing several techniques to fight back and keep their companies profitable.  

Reducing quantity of goods and services 

“Shrinkflation”–a combination of the words “shrink” and “inflation”–is the reduction in the quantity of goods and services while keeping its size the same. It occurs when businesses downsize their products to reduce manufacturing costs without upsetting their customers with a price increase. Customers are sensitive to price changes but are less likely to notice subtle changes in the quantity of a product or service. Therefore, some small businesses choose to mask inflation by charging more for a product that contains a little less than it should. This saves them some money across the board and keeps their prices competitive.  

Raising prices 

One of the most popular strategies for fighting inflation is to pass on the higher costs of production to the customers. About 89% of small businesses in the US have raised the prices of their products to counter inflation since the pandemic. Increasing the prices of their products absorbs some of the additional operational costs imposed by inflation. Increasing prices helps them maintain their profit margins.  

If you plan to employ this strategy, you must be careful in how you execute it. No one likes to pay higher prices and your customers will most likely be unhappy with the news. If you want your customers to remain loyal to your business, you must communicate clearly with them. Make a formal announcement on your website, store pages, or social media accounts, explaining the reason behind the price increase. You should also give them the date the new prices will take effect. This will ensure they have enough time to buy your products at the current prices.  

Employee wage hikes 

Inflation affects the prices of necessities, such as food, transportation, and healthcare, which increases the average cost of living. A higher cost of living reduces the purchasing power of workers whose wages can no longer cover the costs of everyday items they require. Small businesses have increased the wages of their employees to improve employee retention since it costs more to recruit and train new workers if the old ones leave. Retaining employees helps small business owners keep up with demand and deliver great customer experiences.  

How you can prepare for inflation in the future 

Inflation puts a lot of pressure on small businesses. And although you can’t personally do anything to stop it, there are steps you can take to prepare your business for its impact.  

  • Identify areas you can cut costs in your business: Conduct an in-depth audit of your business expenses to identify costs that can be reduced or avoided. Cancel subscriptions for products or services you don’t use anymore and look for cost-effective alternatives to expensive materials.  
  • Automate processes to boost productivity: Investing in automation technology has proven to be useful during an economic crisis. It streamlines your business processes and reduces operational costs to offset the impacts of inflation. Examples of such technologies include Inventory Management Software and Customer Relationship Management (CRM) systems.  
  • Stock up on supplies: Stocking up on your core materials before their prices increase helps insulate your business against inflation. Also, try renegotiating with your suppliers to get a discount on larger shipments.  

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