Inflation is an economic indicator that affects everybody on the economic scale, including businesses and individuals. Inflation is defined as a sustained increase in the prices of goods and services, and is typically measured over a period of 12 months in a particular country or territory.
Inflation can have a severe impact on businesses. It has such a considerable impact because it affects business on every level. That’s not to say, however, that all inflation is considered a bad thing.
Generally, anywhere from 2% to 4% increase over a year is considered healthy for an economy. Anything below that can cause deflation issues, and anything above can lead to some of the problems we will discuss today.
If you run a business and have witnessed inflation first-hand, you will understand that costs, revenues, profits and competitiveness all take a big hit in times of inflation.
Understanding how inflation works and affects your business is vital to making informed decisions about pricing and other business operations. In this article, we will explore what causes inflation and how to keep your business afloat during difficult times.
Analyze your costs and re-evaluate pricing
When we look at ways to reduce the impact of inflation on your business, there are dozens of possible angles. As a business, analyzing costs that you incur and ways to bring them down should be a regular task you undertake. However, in the case of inflation, it can be much more critical.
Establishing the right pricing strategy for your business is vital for success. It helps you maximize your profits, attract more customers and create more visibility for your product or service.
Cost analysis is a great way to identify where you can save money and increase efficiency. It also helps you determine the best pricing strategy for each product or service to maximize profits and sustain a profitable business model.
Negotiate with suppliers for better deals
Identifying areas in the supply chain where you can cut costs also ties in to our opening point. However, opening a dialogue with your suppliers allows you to put in a tangible offer where you can mitigate costs, even if it is only as an interim measure.
All businesses suffer cash flow issues at some stage, even early on. Having a supply chain in which you can operate with honesty and transparency is an integral piece of a successful and prolonged relationship.
There needs to be a fair deal in place for all parties, but being able to bring down high supply chain costs during inflation could be the difference between staying afloat or ending up in financial difficulty during a period of inflation.
Invest in technology or automation/AI
Artificial Intelligence (AI) seems to be causing a stir. With multiple tech giants laying off tens of thousands of employees, AI has seen considerable investment from some of the biggest corporations in the world.
With the right automation tools, businesses can save time and money while improving employee satisfaction. You can delegate employees for other tasks within the business, and automated technology can also increase output in specific industries.
Open a dialogue with customers
We have already discussed the importance of honesty and transparency. However, suppose you examine the matter with your customers and tell them that inflation will significantly impact your business. In that case, they will appreciate your being open about your business’s difficulty.
If inflation is causing issues within the economy, other businesses will likely be suffering similar issues to you, and customers will be aware of this.
Once your customers know the impact, they will be more sympathetic to your situation. For example, if you run a local family business, regular customers might be more helpful and understanding in times of hardship than you think.
Continue to market your business
Even in times of inflation, if you provide an essential service, people will still need it and pay for it. Granted, they don’t want to be spending too much money but if you provide a fair price while letting your customers know you’re still in business, it should help insulate you from all the nasty consequences of rising inflation. This can be easier said than done. You may see marketing as one of the costs you can cut. This decision is entirely down to you; no two businesses are the same.
However, in the age of social media, people are generally glued to their phones, no matter what is happening. Letting them know you’re still operating during a challenging period indicates that the show continues.