Inflation is hitting many small businesses facing supply chain issues, product price increases, and changing inventory levels. The economy is experiencing record-high inflation, with the consumer price index at 8.3% this year. Inflation can impact a business’s operations and services, resulting in loss of customers and reduced sales.
Despite these challenges, there are ways to combat inflation and for companies to increase revenue.
Elie Y. Katz, President and CEO of National Retail Solutions (NRS), said those with a plan to manage the business in the event that our country experiences another recession have a better chance of surviving and thriving than those who do not. Preparing and researching what would work best for their business will help in the long run.
What is Inflation?
Inflation occurs when prices for goods and services rise, which ultimately results in a decrease in purchasing power. “There are three types of inflation: demand-pull inflation, cost-push inflation, and built-in inflation,” Katz said. “When there is increased consumer demand for items and services, this causes prices to go up while businesses try to meet demand. This type of inflation is called demand-pull inflation. Cost-push inflation occurs when the overall supply of products and services declines due to rising manufacturing costs. Because of these various inflations, workers expect their wages to rise because labor is in higher demand. All three kinds of inflation can directly impact the costs of living, the costs of services and labor, and the price of goods.”
Focusing on Profit Margins
While inflation may seem to make it challenging for businesses to sell their products and services, there are ways for business owners to increase their revenue without being tied down by rising costs.
“Business owners should rethink pricing on specific products, focus on their profit margins, and consider using a profit ratio to see how their business is doing in the marketplace and where it needs to improve,” Katz said. “Profit ratios include gross profit, net profit, cash flow, and operating profit margin. These formulas can help business owners determine if they are spending too much or staying within their budget. That way, they can focus on how they can still get an ideal profit while selling their products.”
To maintain a good profit margin, business owners must have reasonable prices while staying competitive in the market. If the prices are too high, owners may lose their customers to competitors. Therefore, it is crucial to research and compare the prices of competitors.
“There must be more incentives than low prices to attract and retain customers. Offering a loyalty rewards program, such as that offered for NRS POS retailers, can bring customers back into the store, yielding repeat purchases and revenue,” Katz said. “Even in the best times without inflation, customer loyalty is key to succeeding in a marketplace full of competitors. With minimal research, a company can determine what deals and loyalty programs competitors in the area offer and leverage them accordingly. Statistically, retail shoppers are creatures of habit and loyal to their products.”
How to Attract Customers to Your Store
The store can be beautiful and stocked with the most sought-after products, but current and potential customers will not know without marketing the business. Word of mouth is not enough to build loyal patronage.
“Business owners should analyze how their products stack up against their competitors, how they stand out, and why they are the best retail option for customers. Advertising around their store with signs, on the point-of-sale system, online with their own website, and on social media platforms are effective ways to create a buzz,” Katz said. “Local newspapers and other printed publications, mailers, and handing out pamphlets outside the store are also effective ways to attract business. These advertising strategies will ultimately increase the consumer base and build more recognition, which can lead to greater profits.”
Manage Your Inventory
When purchasing products, keeping an eye on inventory is vital to keeping costs low. An overwhelming amount of inventory can reduce cash flow, leaving no budget for stocking up on other items.
“The best way to manage inventory is to invest in a point-of-sale system that can track sales data, notify vendors when stock is running low, and track inventory levels,” Katz said. “Depending on sales, owners can use a POS system to determine how much inventory to buy.”
Business owners can lower the price of certain products if they see that some aren’t selling as well as others, but they should still maintain a sufficient profit margin. Some businesses are doing ‘shrinkflation,’ which involves reducing the size of their products while maintaining the same price.
“For instance,” Katz said, “Unilever dropped the size of their Dove body wash from 24 to 22 ounces, but kept the same recommended retail price (RRP). To determine whether the price point corresponds with the product’s value, business owners should analyze the options from their vendors. They can think about utilizing a direct supplier or smaller businesses to easily check what is happening in the process and negotiate the costs with them if they discover supply chain concerns.”
When ordering inventory merchandise, it is best to plan ahead and regularly review sales patterns to determine what needs to be ordered to ensure that items don’t sell out.
“When selling merchandise at the store, owners can advertise on the POS system’s customer-facing screen, where customers can see them while checking out,” Katz said. “There are many strategies that business owners can use; it all depends on how they use them during this time. Although this may be hitting many businesses, having a plan can help many business owners manage their businesses during a crisis.”