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According to Tonika Bruce, CEO of the company Drive nicewhich helps start-ups, non-profits and leaders succeed with unique and innovative marketing and business strategies.
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By being prepared, businesses can survive and thrive in cycles of inflation. while it is speaking of the fact that 2023 could be a year of recession – which poses several economic challenges for small and medium-sized enterprises, such as falling sales, tight budgets and financial difficulties – we will not go into the politics and philosophy of economics, what causes this and how end. Instead, let’s look at why inflation doesn’t have to be a nightmare for small businesses.
Small business and inflation
Inflation has made everything expensive, quickly reducing customers’ purchasing power – and that’s not good news for businesses.
Expert figures tell us progress has been made, with a decline from 8.8% in mid-2022 to 7.1% by the end of the year. Inflation is projected to fall further to 6.6% by mid-2023. However, the fact remains that many business owners started the year under the same market conditions – a much higher inflation rate than the pre-pandemic rate of 3.5%.
Rising costs for businesses often lead to higher prices for goods and services to save profit margins. In turn, consumers face rising energy costs for other basic needs and may demand higher wages to maintain their lifestyle. This wage-price cycle can accelerate inflation. If wages cannot keep up with inflated prices, customers naturally reduce consumption, potentially worsening an already fragile situation for businesses.
Keeping up with ever-changing market and industry trends can be difficult, and sometimes small businesses have to start over. However, my experience starting businesses has shown me that small businesses are resilient. Most small business owners have an entrepreneurial spirit, find creative solutions to problems, and are brave enough to take risks. While we see companies fail in the face of economic hardship, a lot changes and transforms into a brand new venture or starts anew.
Staying competitive
While consumer spending falls during inflation, that doesn’t mean people stop buying – they become more careful about where they spend their money, shifting their focus to the items they consider essential. In this case, consider proactive price restructuring strategies to increase sales. Here are some methods to consider.
• Sales may fall but customers will be looking for more value for their money.
Inflation means consumers spend less. This is an opportunity to create new sales paths. Business owners need to adapt their products and services to provide value and appeal to customers.
Necessity is the mother of invention. We saw a similar scenario (subscription required) at the beginning of the pandemic as companies adapted their operations to new needs and mobility restrictions by making products available online. Some have even started offering replacement products.
Customers struggling with inflationary pressure will probably appreciate the relief of adjusted prices. But how do you balance customer relief and make a profit? One answer is creative pricing. For example, for subscription-based services, consider longer payment plans to lighten the wallet and price bundling for customers looking for discounts.
• If customers don’t buy, contact them instead.
Before inflation, information activities in business were based on marketing campaigns where customers knocked. However, during inflation, fewer people are looking for products to buy, let alone how companies typically hold back on marketing spending in uncertain markets.
Now is the time to reach out to your current customers. These are the customers who will keep the door open during the economic turmoil, when it can be difficult to attract new customers. The goal is to keep existing customers engaged with your business and show appreciation for your support in slower times.
For example, consider using newsletters or emails with regular company news updates or product discounts for loyal customers. Another potential engagement channel is an online portal that allows customers to access resources such as tutorials and guides; this can be effective in keeping customers engaged even if they are not making active purchases. You can also host exclusive events such as virtual conferences and discounted webinars for service companies, which have the advantage of helping to build a community.
• Funds can be hard to come by, so look for alternatives.
In uncertain markets, investors may pull out to manage risk, but they often don’t pull out completely. Some investors are still willing to spend money, although usually at a higher price. The same applies to financing from banks. While dwindling capital may tempt business owners to go into debt, now is not the time to do so. Instead, I recommend cost management. Cut expenses, invest wisely and monitor your cash flow.
Check your books first to identify any existing money leaks and build a reserve to amortize the business over this cycle. Then check the processes. What systems are used? Are they efficient? What about profitability?
It’s not uncommon for companies to invest in productivity enhancing systems during periods of high growth, but in tough economic times some of them may not deliver enough value for your money. Prices for some project management tools have increased, and CRM systems can sometimes be too expensive for small business operators. Their audit allows you to identify cost-effective alternatives that can provide as much or more. This may mean jumping to upcoming solutions during a period of slow growth before their prices increase.
bottom line
Inflation and recession do not always mean doom and gloom for the entrepreneur. Small businesses can survive and even thrive during inflation if they pay attention to cash flow, products and services, and customer relationships.
