The global post-pandemic economy is turbulent with the current inflation and looming recession. It’s especially affecting small businesses. According to a recent Goldman Sachs survey, 91% of small business owners report negative impacts on their business, and 73% specifically blame rising energy costs.
Combatting inflation isn’t easy, especially when small businesses laid off nearly 40% of their workforce at the start of the COVID-19 lockdowns. A McKinsey survey found rising prices are a bigger concern to the average American than gun violence, COVID-19, and climate change, with a whopping 65% of people reporting it as their top worry.
As you navigate stricter buyer expectations and supply-chain shortages, you may be wondering how to deal with inflation as a small business. If you employ fewer than 10 people, you can be detrimentally (and disproportionately) affected by shrinking budgets. Luckily, there is hope.
The Impact of Inflation on Small Business
Running a small business in a bull market is relatively easy compared to periods of economic uncertainty. When the economy is turbulent, small businesses face big cash-flow problems. For example, JPMorgan Chase reported the average SMB has only 27 days’ worth of cash in reserves. During the pandemic, revenue losses and other operational issues caused by the lockdowns left these businesses struggling at an unprecedented time.
In the wake of COVID-19, prices are creeping up due to supply-chain shortages, global unrest, and a tough labor market. Past marketing and sales strategies aren’t working on today’s customers, prompting businesses to cut unnecessary expenses in order to keep going. Unfortunately, making too many changes to combat inflation too fast can derail you at a time when every penny spent can make or break you. It’s best to adjust your sales strategy than completely abandon it.
Even worse, some SMBs lose motivation and shrink their goals alongside the economy. This is a mistake that causes you to miss opportunities and forget what it was your business excelled at in the first place. When dealing with inflation, it’s important to meet the challenge head-on by doubling down on what you do best.
5 Strategies to Combat Inflation
The smaller the business, the bigger the negative impact inflation can have. Here are five proven steps to deal with inflation as a small business owner:
1. Review your books
It’s not uncommon for business owners to set prices based on profit margins. But during times of rising prices and slowing sales, it’s important to reassess your profit margins to determine if you’re pricing your own products and services correctly. While it may be tempting to combat inflation by maintaining or increasing your prices, this could negatively affect your sales numbers.
Although inflation can be scary, it’s a lot easier to handle when you have a firm grasp on where you stand. It is important to look at your pricing from many different angles like reviewing inventory, staffing costs, expenses, and contracts to ensure you can stay in business through the tough times.
2. Assess market needs
Not only should you review your business, but you should also study the latest market trends. It may have been a while since you’ve studied your ideal buyer and the market factors that lead them through your conversion funnel. One of the best ways to deal with inflation is to refine your demographic targeting to optimize spending on buyer acquisition.
Considering the new economic environment, determine what’s important to your ideal buyers. Figure out where your strengths lie and how you can resolve their modern pain points. This will help you remain relevant in an ever-changing marketplace. Microsoft, for example, included Teams into its enterprise suite to meet the demand for virtual meetings and compete against Zoom.
3. Reset your goals
It’s important to remain data-driven. Buyer sentiment drops as inflation rises, so you need to focus on maintaining your buyer relationships during times of economic uncertainty. Examine your company goals and restructure key performance indicators to meet the new standards for success in today’s market.
Data can help you uncover business issues that need to be addressed. Discouraging harmful habits and tackling ineffective processes puts you in a better position to compete in an ultra-competitive market. Sometimes you must remove underperforming employees, too.
4. Pivot to meet new goals
A big priority for any business dealing with inflation is solving potential buyers’ problems. You need to meet the buyer where they are at by listening and being on top of market changes. If your product or service solves a problem, people will continue to patron your business as long as you reach them with the right messaging. But the “right messaging” has changed significantly over the past few years. You’ll need to proactively pivot to meet buyers where they are.
Club Vino, for example, converted to virtual wine tastings when the pandemic immobilized the travel industry. This helped it provide the same experience despite not having the typical venues available. Pursuing your new goals with the same vigor and resources as you did before will give your business a fighting chance.
5. Start right now
The most important step is the one you take right now. Some business owners hold out during times of economic pullback and inflation; they hope that things will quickly return to normal. But the reality is that there’s always a new “normal” to adjust to.
Inflation is a reality we all must face. Other small businesses are struggling as you read this, so there’s no better time to get started. The impact of inflation on small business is huge, but it also creates a time when disruptive solutions can rise to the top and take valuable market share. A small business that finds ways to deal with inflation and maintain relevancy can jump to the head of the pack.
Inflation is a normal part of the economic cycle. Although it squeezes businesses of all sizes (forcing you to do more with less), it’s possible to navigate it. The key is to remain informed on internal and external factors while optimizing your processes to meet buyers where they are. If you can pull that off, you’ll remain stable (or even grow) even in the midst of a turbulent economy.