Five ways to tackle rising costs in your small business
Around the world, businesses have been suffering the effects of rising costs. Inflation, the pandemic and the war in Ukraine have mounted pressure on the economy, shifting the bottom line for businesses in all industries.
Business
Around the world, businesses have been suffering the effects of rising costs. Inflation, the pandemic and the war in Ukraine have mounted pressure on the economy, shifting the bottom line for businesses in all industries.
According to the Australian Bureau of Statistics (ABS), 97 per cent of Australian businesses anticipating price increases said they were being driven by non-staff related expenses.
When costs are rising across the board, it can be a challenge for small businesses to continue generating a profit.
If your business is like the many others feeling the pinch, here are five ways you can tackle rising costs.
1. Pass the cost onto clients
The simplest way to deal with rising costs can be to pass the cost onto the customer.
From petrol to supply, there are many reasons why businesses everywhere are being forced to reevaluate their pricing.
Figures from the ABS found that 39 per cent of all business expect to increase their prices more than usual over the June quarter.
During times like these, it’s important to review your own pricing strategy whilst your competition is doing the same.
If you do decide to increase your prices, we recommend being upfront with your customers rather than being discreet. This will give you a chance to justify your decision and avoid the risk of losing good will with your customer-base. Customers tend to be much more understanding of your price increases if you have communicated your reasons effectively.
When your costs are going up, assess whether you can mitigate or substitute some of these costs, as well as improve the efficiency of your operations.
It’s easy to overlook or forget about expenses that may no longer be integral to production.
Conduct a review of each line item in your bank account and identify areas where cost-effective changes can be made. Is there a cheaper supplier available? Do you have subscriptions that are no longer needed? Can you save on delivery costs by sourcing locally?
Looking to technology can also be a great way to boost your productivity and output without requiring expensive manpower.
Measure the value of your expenses and be ruthless with your decisions.
Lastly, evaluate how any substitutions or changes might affect the quality of your product and what impact this will have on your brand. Keep in mind that compromising on quality or your servicing can hurt the value that customers place on your product.
3. Review your product line
Whilst the first two solutions address your revenue and costs, reviewing your product line is a more entrepreneurial approach to the problem.
Most successful businesses are always reviewing and updating their output and sales methods, allowing them to keep up with market changes and the growth of their business.
This doesn’t mean completely changing your product or the direction of your business, but focusing on whether you can make your product/service more profitable.
The most common and effective ways to improve your product line can be to:
Alter the size and packaging of items
Make improvements to the quality of your product
Bundle different products together
Cease production of unprofitable items
4. Ride the storm
During tough economic times, sometimes the best solution is to hunker down and resist the urge to make changes to your business.
As a small business owner, it’s easy to make knee-jerk decisions when faced with challenges, particularly when they affect your profitability.
Riding out the storm for 6 to 12 months will give you time to assess the business climate around you and determine whether long-term changes are needed to deal with rising costs.
In order to do this, it’s crucial to maintain a cash savings buffer to protect you whilst you ride out the bumpier economic conditions.
5. Double down and push for market share
The aggressive approach is to double down on your business and push harder whilst your competition is pulling back.
When others in your industry are raising prices, there might be an opportunity to win over dissatisfied customers who are looking for cheaper alternatives.
This doesn’t mean you have to withhold price increases across all your products. It might just mean identifying one or two elements of your business that you believe you can market effectively.
To do this successfully, you need to be honest with the value of your business and have a great track record with your existing customers.
The aim of this strategy is come out of the storm with an expanded customer base and larger share of the market.
Whilst this can potentially lead to significant long-term rewards, businesses without a savings buffer can risk running out of cash flow in the short-term.
Finally, make sure to reach out to your accountant for help on planning and implementing strategies to tackle your rising costs.
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