Price hikes are everywhere. Astute managers have turned their attention to strategies to combat inflation.
Stay-at-home orders of the pandemic removed workers from production in 2020 when we were already dealing with a labor shortage. Yet those initial COVID absences were nothing compared to the subsequent fears, child care interruptions, accelerated retirements, the Great Resignation, and lack of immigration. Labor shortages caused supply chain issues that now make everyday goods harder to find. This increases demand and prices. There are many other factors: low unemployment, high wages, rising energy costs, rising fuel costs, (due to sanctions against Russia for the war in Ukraine) interest rate hikes and escalating housing costs.
The 12 months ended March 2022 saw gasoline prices increase 48%.
Rising fuel costs increase the cost of manufacturing and receiving goods for resale. It also impacts the cost of shipping and delivering merchandise to customers, and as online sales grow, customers want everything delivered! A smaller percentage of each dollar falls to the bottom line unless you increase prices to offset rising costs. How do rising fuel prices impact your business? What’s your plan for minimizing the impact? Every business owner should think this through.
How do businesses manage inflation? “Raise the price” is a common answer – one that is almost always necessary in inflationary times. But there are other actions to consider. Here are some common business strategies for combatting inflation.
- Sell more – a smaller profit percentage on higher revenues can still yield higher profit dollars
- Watch your numbers closely – understand where the money goes and use breakeven analysis to track how your cost structure is changing
- Cut unnecessary costs – but don’t compromise the customer experience
- Raise prices – nobody wants to do it, but perhaps you must
- Improve efficiency to offset cost increases – reduce wasted labor and materials and eliminate unnecessary processes
- Revisit salesmanship skills and training – focus on activities that drive inquiry, increase close ratios and lift average ticket
- Stay focused – Know your “Why?” and use cascading SMART goals to keep your team on track
- Delegate to make your team more valuable – you can’t do it all yourself
- Buy better – take full advantage of preferred suppliers with negotiated discounts
- Invest in inventory – if cash flow permits, bulk up on fast-turning inventory in advance of price hikes
- Shift the sales mix – identify the products and services that carry a higher margin and focus purchasing, sales and marketing efforts to sell more of them
- Shrinkflation – change the packaging so price changes aren’t so obvious (fewer chips in the bag)
- Make less profit – it’s what happens if you don’t get in front of changes
To successfully navigate your pathway to profit during inflationary times, you must be on the lookout for early signs of changes and confront them.
Don’t just react.
Anticipate and prepare.
Inflation is a part of our expected economic cycles. Good financial habits such as monthly review routines, regular check-ins on SMART goals, financial skill-building for managers and team leaders and continually cultivating vendor and lender relationships should already be in place. If not, now is the time.
When change is inevitable, follow these tips
- Accept the change and find your comeback
- If growth is your comeback, build scale in your enterprise
- Bigger can be better, but don’t sacrifice efficiency or customer service just for the sake of volume
- Invest in your team. Build skills and keep learning
- Be flexible
- Embrace technology
- Be a fixer, not a blamer or a victim
- Have SMART goals and plans aimed at your business priorities
- Watch the numbers and learn from the data
As has been the trend for decades and is true in business today, you must do more to do well. Your challenge is to grow sales, improve productivity and control costs without sacrificing customer service, convenience and connections. Not an easy task, but a necessary endeavor that will require action with intention.
About the Author
Barbara Nuss, CPA is the President and Founder of Profit Soup, a financial education organization specializing in franchised companies. Profit Soup’s on-demand curriculum at www.profitsouponline.com compels business owners, emerging entrepreneurs, career builders and organizational leaders to elevate their financial game. Barbara is a sought after conference speaker and can be reached at barbara.nuss@profitsoup.com or at 206-282-3888. www.profitsoup.com