As we’ve shared before, inflation is real – and it’s almost certainly hurting your small business. While most people are aware that rising costs impact a business’ bottom line, the reality is that it actually makes every aspect of a business more expensive. From higher rent or leasing costs to greater equipment expenses, increased utility costs and beyond, inflation can be crippling to small companies.
Fortunately, although none of us have control over the state of the economy, there are ways you can keep your business afloat during such times. One of the best ways is by knowing if, when and how to raise your prices. Here’s a deeper look.
Should You Increase Prices Due to Inflation?
In a word – yes. The fact is, if you haven’t increased your prices in the past year, you’re losing money on a daily basis. With overhead getting more expensive and never ending supply chain issues, small businesses must reflect these changes in their pricing model or experience potentially dire consequences.
Unsure how much of a price hike to make? Check out the Finli inflation calculator, which was designed to help you make that determination accurately and fairly.
When is the Right Time for a Price Increase?
Now. Inflation has already been making an impact for more than a year, and waiting to raise prices may only cause you to lose more money.
When is the Wrong Time for a Price Increase?
There are really just two main reasons why it could be the wrong time to increase prices. The first is if you’ve already very recently increased them, and the second is if you have not met customer expectations.
In the first scenario, a recent price hike indicates your income is probably in line with your rising expenses. If this isn’t the case, plan to increase them again in 3-6 months if inflation continues to increase.
In the second scenario, there are some promises you may not have fulfilled for your customer. Wait to increase prices until you’ve rectified any relational issues, and are back on solid footing with a given customer. Asking someone to pay more when something went awry on your business’ end just doesn’t make good business – or interpersonal – sense.
How to Minimize the Effects of Inflation on Your Business
In addition to raising your prices, there are a few more steps you can take to limit the damage to your business that inflation can cause, including:
- Shop around to various vendors to make sure you’re getting the best prices for your materials, supplies and services. Ask for price breaks or other considerations from vendors with whom you have strong relationships; they may not be able to accommodate you, but you won’t know until you ask.
- Reduce costs in areas where it won’t reduce the quality of your products or services.
- Have honest conversations with your customers. If you repeatedly over-service the same few customers, it’s a good time to let them know you need to charge for all those extra phone calls and requests that require your time and expertise.
- Focus on productivity, profitability and the tactics that have proven to be effective in the past.
If you still have concerns about inflation, you’re not alone. Here are a few questions that small business owners typically ask.
Do Prices Go Up Because of Inflation?
Yes, in general. It’s hard not to notice the breadth of inflated prices today, from eggs at the grocery store to fuel at the gas pump and everything in between. But, it’s important to note it’s not all doom and gloom.
In fact, some foods like potatoes and tomatoes have seen only minimal increases, while cosmetics, eyeglasses and jewelry have stayed constant. What’s more, certain goods (like televisions and smartphones) cost even less right now than they used to.
What Prices are Rising Due to Inflation?
In addition to items like eggs and crude oil, as mentioned above, prices have risen for many of the supplies and equipment needed to operate small businesses. Additionally, a competitive labor market that favors workers has forced small businesses to spend more to attract and retain talent, further whittling down their profit.
How Do You Announce Price Increase Due to Inflation?
Business owners are well aware that communicating price changes has the potential to alienate customers if not handled with care. So, how do you do this without losing customers? Stay tuned for our next blog, which will go more in-depth into this topic.
In the meantime, have you tried Finli yet? Our invoicing and payment collection platform was designed to help business owners just like you get paid faster and save valuable time. Sign up today!