It’s not news that we’re in an inflationary period. We don’t need to go into the reasons why. The fact is that both producer and consumer price increases are at levels not seen in the past 30-40 years. It took a while to get us here and going to take a while to get us back – at least through most of 2023. Again, you know that. But what do you do? How do you navigate inflation? How do you combat inflation as a business with higher costs? Here are three strategies you should be considering.
Strategy #1: Target Your Price Increases
If you’re doing across-the-board price increases, you’re making a mistake. It’s potentially damaging to your business. Why? Because the smartest business leaders and managers I know are leveraging something that their parents and grandparents didn’t have 40 years ago when inflation was last this high. That something is data.
Compared to people running businesses over the past 5,000 years, you and I have an unprecedented amount of data at our disposal. Data is in our accounting systems and customer relationship management databases. It’s in our order entry, inventory, quoting and supplier files. And it’s in Office 365, Google Workspace, Slack, Box and Asana. Up until recently, so many small and mid-sized companies ran off paper and manual documents. Now they don’t.
So do what my smartest clients are doing: leverage that data. Of course, you’re justified in higher costs. But be very, very targeted about it. Don’t be greedy. Bump them up for those companies with lower margins and high needs. Consider keeping them the same for your best and most profitable customers. Tweak what you’re billing for each product line. Adjust based on where your customers are located or what industry they’re in. Protect your margins. Be selective.
Take time and analyze your data. Segregate it and make choices based on all the above factors. Don’t just do a global price increase. Some may expect it. Others may resent it. A few may deserve it. All of that should be your decision.
Strategy #2: Elimination of Product Lines
The sad fact is that many of the products you sell and services you’re providing aren’t really contributing much to your profits. Ever heard of the 80/20 rule? I know it applies to your business, especially when you think about how to navigate inflation.
Some consultants that specialize in operational management have found that as few as 25 percent of products generate 90 percent of revenues. Not only that, but it’s quite possible that the bottom 50 percent of products could be generating less than 3 percent of revenues. So what does that tell you? It says that you’re wasting time.
Maybe not completely wasting time. You do need to be careful before you start willy-nilly cutting products. In some cases you may find that a big client is happy because you offer one of those products in the 50 percent. So you’ll need to be careful about your cuts.
But do the analysis. Are all your products and services really worth it? Would cutting out products make room to sell other, more profitable product lines? Would any significant customers be affected? Can products or services be outsourced? Why not sell some product lines to other companies and then partner with them whenever you need that supply. By cutting out product lines, can you also increase productivity and dispose of unwanted inventory taking up space?
When times are busy, we get too distracted to really sit and analyze all of our webinar streams. That’s a mistake. High inflation forces us to make smarter decisions. And when it comes to knowing how to combat inflation as a business, a smart decision may be to focus on the things that are most profitable for your business and get rid of those things that aren’t.
Strategy #3: Double Down on Your Communications
Above I wrote about how our parents and grandparents didn’t have the kind of financial data at their disposal back in the inflationary ‘70’s and ‘80’s that we do now. But there’s something else they didn’t have. They didn’t have Outlook. Or Gmail or Salesforce or Zoho or any of the incredible mass communication and collaboration systems that we have today.
So take advantage of them. Why?
Because your customers know what you know. They know that we’re in inflationary times. But they also have the same question that you have: When? Will prices go up? When will my products be delivered and when will services be performed? Your job is to stay as close as possible to your customers and your suppliers so that they can be as up to date on all of these ever-changing things as you are.
You don’t just “blast” an email to your database. It means honing and segmenting your data. Investing in a good customer relationship management system. Sending out emails and texts or making phone calls as your customers’ desire and opt-in. Updating them on product status, job activities, backlogs, delays and shipments. Just like you want to know about the status of a flight when it’s delayed they want to know what’s going on with their orders.
And they also want to know about pricing. They’re steeling themselves for increases and when they come -as long as they’re not too high – they’ll adapt. But they need time to adapt. Your job is to leverage your communications and collaboration systems so that your customers are well-warned in advance of changes that will impact their companies. They, like you, don’t enjoy surprises.
So if you want to know how to combat inflation as a business, do your best to minimize the surprises. You’ll find your relationships with both customers and suppliers to be stronger well after this inflationary period is behind us.
How to Navigate Inflation
There are other tactics smart companies are using as they learn how to navigate inflation. But at the core, it’s all about leveraging data, focusing on the right products and communicating with your customers and suppliers. Do those three things and you’ll be just fine.
For more resources around inflation, check out this recent Right Networks webinar about navigating small business challenges in a higher-priced world.