Main Content

Back to Blog List

The UPS Store Small Business Blog
  • 16 May 2022
  • Tiffany Carey

How to Manage the Effects of Inflation on Your Small Business

You’ve heard or seen it on the news: prices are going up, and the power of the dollar is weakening. As a result of the pandemic, we are in a state of inflation and what some consider “high inflation.” Prices have risen 8.5% in the last 12 months. It’s the largest jump in the cost of products and services since 1981.

As a small business owner, inflation will appear as an increase in your overall expenses and can be felt at all levels: production, delivery, distribution, operations, human resources, and rent. When inflation rears its ugly head, the knee-jerk reaction is to raise prices. While that might have been the answer in the 1970s and somewhat in the more recent 2008-09 period, it doesn’t have to be the solution here. Small businesses owners are now more equipped to handle inflation because they have sophisticated technology and robust data that can provide alternatives to raising prices. It’s a new way of thinking, and it can help you maintain your revenue stream without losing customers.

Audit Your Business

Now’s the time to audit your business. Take a deep dive into your budget, and examine every line item. Are there places that could be nipped and tucked that are not customer-facing? Trim the fat and remove any expenses that aren’t integral to the daily operation of your business. You’ll need to look at everything with a discerning eye and swiftly make changes. 

Some examples of places to look for savings right now? Consider renegotiating your insurance policies, try social media marketing and analyze recurring costs like subscriptions.

Redefine Your Offerings

If your business offers a mix of products and services, chances are there is some over and underpricing happening. Start by looking at the cost of your hard goods. Given the challenges on the supply chain, you are most likely running tighter margins on merchandise, but it’s always good to be sure. Then review your cost of services. These will commonly reflect the price of labor as most services are performed by or with the help of paid staff. 

Once you have your products and services examined, do a little research in your competitive market. Review what your competitors are charging in comparison to you. From there, you can discover areas where you could potentially cut or increase costs to become more competitive and more attractive to the inflation-ridden consumer. Depending on the response, these changes could eventually lead to higher profits.  

Reconsider Your Pricing Strategy

Rather than raising prices on their consumers, small business owners may consider using a subscription pricing model. Subscriptions make revenue more predictable. They are also more attractive to the consumer because they are clear and transparent. Subscriptions can lower the point of entry for customers, which results in more potential customers buying into your business.     

Adjusting your pricing model to a subscription strategy is moving your prices. For example, a cycling studio that moves its pricing from charging $45 per ride per class to $200 per month has moved the costs without raising them in the consumers’ eyes. A subscription-based pricing strategy can bring a more significant customer retention rate and a bottom-line recovery. Many SaaS and entertainment companies like Netflix and HBO have moved to subscription-based pricing and are flourishing. This type of change to your pricing model is a more strategic approach to managing the effects of inflation than simply raising prices for consumers.

Inflation today is different than it was 10 years ago. Small business owners possess more advantages. Robust data and analytics plus innovative techniques can build strategies that propel companies forward rather than backward during challenging times.

Back to Blog List