Price increases, supply chain fears, and cash flow problems are dominating headlines in 2023. Now the online boom of the pandemic is quietening down, things are settling into a more offline world and many previous rapid-growth businesses have been left in the dark.
It can be a scary time for small business owners to make sales or even retain customers. Interest rates are up, profit margins are tight, and many businesses have thrown long-term goals out of the window to survive short-term.
Global average inflation is now at 7%, although it’s expected to decrease to 5% by 2026, it still means that SMBs are prioritizing their annual bottom line more than ever in any business plan.
In this article, we’ll explore five ways to save money during inflation that you can start implementing today to look after the dimes for tomorrow.
Measured by the Consumer Price Index (CPI) or the Producer Price Index (PPI), inflation refers to the increase in prices of all goods and services within an economy.
SMBs are often the hardest hit when it comes to inflation. Investment intent is often low, bank interest rates are higher than ever, and any new pricing models businesses need to push are often shunned by their buyers as inflation is hitting everyone.
In all, the effects of inflation can be a daunting time for SMBs, and they’ll need to innovate ways to cut costs elsewhere and survive the drought. Let’s explore what you can do.
1. Reduce fixed costs that are not business critical
Are there any ways you can reduce fixed costs for your business? Now’s a great time to reevaluate your tools, subscriptions, and consumable goods and determine if they’re necessary or not. If there are business-critical items that are biting at the budget, then open the floor to negotiations with your provider and see if you can get a reduced rate.
Now is not the time to reduce your workforce. Your people are the key to getting you through a recession, they’re not a scapegoat to beating high inflation. The cost of hiring an employee is between $4,000-$20,000, not a sum that comes lightly when trying to keep costs down. Keep your staff, and rework their business inputs and goals to make the most of your talent during this time.
2. Invest in the right business technology for your needs
If you have assigned budgets to certain tools that you’ve now scrapped because you’ve actioned the point above, rather than saving the cash (which will only lose its value in the bank) consider reinvesting it into technology that will help automate processes, reduce manual labor costs, drive efficiency and make more money.
At this point, budding entrepreneurs and business leaders may want to consider:
Remember, economists will always say that higher costs don’t necessarily mean you need to cut costs. It’s more that you’ll need to reevaluate costs, invest smarter, and pivot on a provider’s pricing strategy to win lower prices.
If you cut budgets altogether, you’ll struggle to survive the recession and certainly won’t grow. However, if you strategize and streamline spend, you’ll grow via an alternative route you perhaps hadn’t considered before the interest hikes.
3. Retain your employees and customers
Rising costs mean it’s a good idea to take a leaf out of a product-led growth strategy. Retention is key to acquisition. Rather than panicking to cut down on raw materials or desperately trying to acquire new customers, turn your efforts inward and try to look after what you have.
This goes for both employees and customers.
Losing an employee can be extremely damaging during high inflation—1-2x of that employee’s annual salary.
Look at ways you can keep your staff on that don’t need so much of a cash investment. There are other perks you can offer that are time or holiday-related to keep employees happy and sticking with you through it all.
At the same time, take strategic bets that revolve around your customer or client retention methods.
Upselling to a current customer is 65% more successful than selling to a new prospect. Turn your efforts inward to meet customer demand, and see if there’s room to expand on contracts—big and small.
4. Take strategic growth bets
An increase in inflation rates means many businesses are going to be capping their growth spend. It’s surprising the number of businesses that didn’t learn from the 2008 financial crisis.
Trying to grow when everyone else is can be tough. Trying to pick up growth at the same time as the rest of the world (after an economic crisis) will see you throwing money at the wall in an effort to stand out in oversaturated ad spends.
What does this mean? Waiting for things to calm down to grow is going to be potentially bank-breaking. Right now, growth channels are quiet. They’re cheaper, they’re less crowded and that doesn’t mean your customers aren’t still looking if what you’re offering is essential to their needs. Capitalize on this.
Take strategic growth bets. Try investing in new growth strategies (e.g: SEO, content, social media influencer partnerships) and make the most of these disruptions in our economic conditions. There’s a high chance you’ll have a great opportunity to stand out and continue growing while all of your competitors are on pause. This will help you to triumph when the market returns to “normal.”
5. Lower the prices of your product or service
Last, but not least, cash shortages mean that certain industries or customers will be looking to spend less on their services or SaaS tools. That’s okay. Be as flexible as you can during this period and be open to independent negotiations with long-standing contracts. Can you show grace for the fellow SMBs in your ranks?
With your most accessible pricing in hand, try to re-engage past customers or clients. If they’ve recently churned due to trying to cut costs themselves, perhaps your new pricing models may appeal.
At the very least, reaching out to past customers is a great way to get top of mind again, so that even if they’re not in a position to invest in your business, perhaps someone in their network is.
Turbulent economic conditions are not the be all and end all for small businesses. However, these conditions do mean you’ll need to stay on your toes and continue to innovate growth pathways to ensure your SMB goes beyond surviving and continues thriving through it all.
If you’re a small business owner or CFO, take a look at our guide to modern finance management and see how you can make the most of budgets in 2023 and beyond.