Consumers and business owners alike are feeling the effects of inflation. The latest consumer price index shows that October prices were 7.7% higher than a year earlier. That figure has finally begun edging downward in recent months, but inflation is still a very real problem for small business owners. As operating costs become more expensive, these six simple changes can help your small business stay competitive.
1. Look for new supply options
According to a recent analysis of U.S. Census Bureau data, nearly 4 in 5 businesses cited moderate or large increases in the price they pay for goods or services — and they’re increasingly seeking new suppliers. It means now is an attractive time to shop around for better prices. Begin by taking stock of your current vendors. Comparing their rates to competitors’ rates could help you find a better deal elsewhere. Don’t be afraid of letting your suppliers know you’ve found lower prices. They might offer a price match to retain your business.
Here are some other ways to potentially bring down your total spend:
- If you’re nearing the end of a supplier contract, negotiate a better price before renewing it.
- See if you can consolidate any supplier services instead of having multiple contracts.
- Review your inventory and purchasing needs. If you have a surplus of inventory, you might be ordering too much.
2. Renegotiate loans and lines of credit
Interest rates on small business loans aren’t set in stone, and scoring a rate reduction could help your business save money. According to the U.S. Chamber of Commerce, you might consider renegotiating if your credit has improved or you need financial relief. Some banks may be more open to the idea if you have multiple accounts with them and they’d like to keep you as a customer.
If reducing your rate isn’t an option, check whether you can extend your loan term, which should result in lower monthly payments. Just keep in mind you’ll likely pay more in interest over the life of the loan. If your loan doesn’t have a prepayment penalty, you could always accelerate your payments once you’re on solid financial ground. Business owners can also think about switching to a different line of credit. It could open up your funding options and help you find a more competitive rate.
3. Consider stocking up on supplies
With the current state of inflation, you may be worried about prices continuing to rise. Consider bulking up your inventory and buying extras sooner rather than later. Building a stockpile of essential supplies now will lock in current prices. If costs do go up in the future, you’ll be ahead of the game. Check your budget first to make sure your business can absorb the surge in upfront spending before considering stocking up on inventory and essential supplies. Start by checking your records and reviewing your business purchases throughout the year.
4. Reduce expenses where possible
While we’re on the topic of business spending, pay attention to your current operating expenses. Where is your money going every month? You can then look for ways to reduce spending where possible. These might include:
- Looking for a coworking space or transitioning your team to remote work
- Negotiating lower rates with WiFi and phone service providers
- Modifying or eliminating business offerings that aren’t profitable
- Being more strategic about recruitment (so as not to hire unnecessary positions)
If your business works with firms, such as accounting firms or marketing agencies, the costs can add up. Partnering with a small freelance team instead could help you save.
5. Raise prices — when needed
You may not be keen on passing costs onto your customers, but small price increases may be necessary — especially if inflation is eating into your profits. You certainly wouldn't be alone. Over half of small business owners are raising average selling prices, according to a recent survey from the National Federation of Independent Business. The goal is to stay competitive in your market while continuing to attract customers.
6. Revamp your customer loyalty program
There are other ways to potentially increase revenue. Customer incentives, like loyalty programs and customer rewards, could help boost retention rates. Research from McKinsey & Company has found that top-performing loyalty programs can indeed increase revenue. Customers who redeem points spend anywhere from 15% to 25% more annually by shopping more often, buying more or all of the above. Strong loyalty programs are ones that:
- Make it easy to redeem rewards
- Gamify rewards
- Are connected to core revenue goals and business promotions
- Include partnerships
Small business owners may need to get creative with how they respond to inflation. That means finding ways to reduce costs and increase revenue.