Inflation is a huge problem right now. The cost of goods and services is going up, making it harder and harder for businesses to get by. Why is inflation so high right now? Anything from the Ukraine war to a strong demand laying waste to supply is behind the surge. What’s a small business owner to do?
In this special episode of Small Biz in :15 On Location, Small Business Trends Executive Editor Shawn Hessinger interviews business expert, Chandrashekar LSP, Senior Evangelist of the Zoho Corporation, to discuss how you can battle inflation with your business.
How do Businesses Deal with Inflation?
Shawn: Inflation is a huge deal with small businesses in terms of their supplies. What steps can small businesses take to, if not control inflation, at least mitigate the effect that it’s having on their business?
Chandrashekar: This is a challenge, but keep in mind that the data is always your best friend.
First, understand what your business data is telling you and predict what’s going to happen from past trends. Then, you can make an informed decision as to when to raise prices and at what level. Secondly, during inflationary times, know that it is a great time to understand what aspects of your business can be automated. Next, act on it since all this automation will essentially help you, even if not right away.
So, understanding those aspects, understanding how to change the processes, and helping make making sure that the investment that you make in business today helps you run it now and in the future.
How to Deal with Inflation without Hurting Your Business
Shawn: How do you use data to figure out if you’re going to raise prices? First of all, is that the right solution to raise prices? And if so, how can you raise prices without chasing your customers away or destroying your business or its competitive advantage?
Chandrashekar: Does every business need to raise prices? I don’t think so. I think there are other ways to mitigate that. For example, if you are getting a specific price for a specific product…maybe just buy some additional storage space and store it and have inventory. That way you can mitigate the price rise until a point that you can defer it and still be able to meet your main commitments.
Afterward, take a look in your system to see how profitability margins have changed in the last 12 months or 18 months. These indicators are good enough to help you understand if you really need to raise prices.
Also, ask yourself if you can mitigate by just having more supplies in store. And then if it makes sense for you, go get some storage space or a small warehouse to keep those components. But there comes a point where even that has to stop. At that point, you must decide when to stop, and the decision has to be based on data.
And then you’re also seeing the trends where there’s inflation and then there are shortages. There are logistic and supply issues going on. Then, it’s all about timing in these cases sometimes.
So quite a few factors and attributes that, based on the business, you can put a finger on it and say, “Okay, here are the things that I can do.”
But overall, the idea is you have data and there are things that you can do…that’s the mitigation that can help initially. And then there comes a point where you must pull the trigger. But pulling the trigger must absolutely be with all the data and information you have.
How do Businesses Deal with Inflation?
Shawn: Let’s take an example of a hypothetical business. Say I’m an e-commerce business that’s been hit with a price increase on everything I sell. How do I start to make the decision about whether I should raise prices, how much I should raise them, and what that’s going to do overall to my business? Because e-commerce is one of those businesses where, unless I make something and no one else makes it, people are going to be looking all over the place to find something priced cheaper than mine. So, prices become really important for e-commerce.
Chandrashekar: It is more than just the price; it’s the availability of products. And what’s actually driving profitability for some of these e-commerce spaces is the fact that you can get…let’s say, for example, something that I can relate to is the availability of baby formula.
There are many places that don’t have any baby formula. So, the fact that you have it gives you an advantage, whether it’s highly overpriced or underpriced. Right? Because it’s all about availability. It’s a supply & demand challenge that everyone is dealing with.
So, can you get a leg up there as a baby formula business? Can you do something and understand what the data is telling you? Again, this is where data helps you understand where the shortages are, and you can stock up supplies with needed things and give your e-commerce store a competitive advantage.
Now, let’s say there’s no supply shortage. Then, it’s all about price. When the cost of acquiring goods has changed, how do you increase the price appropriately? Do you do it one time or do you stagger it over a period? You’re looking at your profit margins and you’re saying, “Hey, here’s a goal: I want to be at a profitability margin right now and profit margins are up like 20%.” And your goal is not to go below 17.5%.
However, don’t change the price overnight. Just get there and know that by the end of the year that you’re going to be able to reach your goals if you price it this way. Again, that’s where data is going to help you.
Every size of business is going to be hit hard by inflation. But the first one that is going to be hit is the small businesses because they depend on the supply chain from the bigger guys who are also hurt.
But again, think of ways that you can look at new avenues and new opportunities in terms of how business models or pricing models can help you. It need not always be about raising the price. It can be models that you can bring in that can help you to combat inflation.
Find Out More About Dealing with Inflation
Be sure to catch the rest of the episode to find out other helpful tips Chandrashekar LSP gives on dealing with inflation.
If you enjoyed this presentation, be sure to check out the following articles that help further demystify how inflation affects small businesses and how you can protect yourself against it.
Listen to this episode on SoundCloud:
Get the latest headlines from Small Business Trends. Follow us on Google News.
More in: Small Biz in 15