In October 2022, the Consumer price index increased by 7.7% from the same time last year. Prices for shelter, food and gas are leading the way, which we all bear the brunt of. Inflation has all kinds of side effects for individuals and for companies, especially for start-ups.
Prices for most of the things you need to run your business have gone up, which can really hurt your profit margin. However, customers are also buying less, so the overall impact comes from both rising costs and falling sales.
In addition to inflation, a recession may also be on the horizon, which will cause consumers to cut even more. The good news is that it is possible for a company grow during a recession. Here we will discuss the top 11 inflation tips for startups.
When you have to pay more for the goods you sell and the other business costs, you may have to pass those costs on to your customers. That’s why you need to analyze your profit margins to determine if you need to raise your prices.
If your costs start to exceed your revenue at your current prices, you may need to increase your prices so that you don’t lose money month after month. Even if you’re still making small profits, you may need to raise your prices to have enough cash flow to keep the doors open.
It’s a thin line to walk. You need to protect your profits, but you don’t want your prices to be so high that customers stop buying.
One strategy you can use is to raise your normal prices, but then sell out and offer promotions that still make you a profit, while giving customers the impression that they’re getting a deal.
How you manage your prices during a recession really depends on the nature of your business. As a startup you are still trying to penetrate the market, so in the long run it may be worth taking some losses temporarily until inflation is under control. This way you keep bringing in new customers who will stay with you even in better times.
Manage your cash flow
In difficult economic times, it is essential to have cash on hand so that you can meet your obligations. Remember that cash flow and sales are two different things. You can bring in income, but still not have enough money to pay the expenses.
Managing your cash flow effectively involves several things.
- Speed up money coming in. If you’re a business-to-business seller, you’ve probably negotiated payment terms with your customers. For example, they can pay you 30 to 60 days from the date of purchase. If so, it’s time to take a closer look at those terms to reduce the time it takes for cash to come in. Invoice quickly and minimize time to pay while staying within industry standards.
- Slow down cash out. On the other hand, you probably have a similar deal with your suppliers where you pay them within a certain time of purchase. Now is the time to renegotiate those terms so that you can delay payment for as long as possible without incurring a penalty.
- Manage your inventory. Stock you hold is cash you don’t have in your hand. You need to find the optimal inventory level that will allow you to fulfill orders quickly and keep customers happy without holding extra stock just sitting on the shelves. You may consider one pull strategy instead of a push strategy.
In a push strategy, you buy stock and then try to sell it. In a pull strategy, you wait for orders before purchasing the inventory to fulfill the order. If you can use a pull strategy and still deliver your orders in a reasonable amount of time, you’ll avoid stock cluttering your shelves and have more cash in your hands.
Analyze your costs
When times are tough, you need to look for ways to cut costs, so you need to analyze your costs across all of your activities. You are looking for items to reduce or eliminate. Here are a few costs you can check out.
- processes. Analyze all processes within your company to find steps to eliminate or tasks to automate. This can reduce your labor costs or use of other resources.
- Credit card processing fees. You can try to negotiate lower rates with your credit card processing company or shop around for a lower rate. Credit card processing fees can be significant, so lower rates can make a big difference.
- Labor cost. No one wants to lay off workers, but you can’t pay for labor you don’t need. Take a look at how much you pay people and for what, and see if you can reduce or eliminate any of those costs.
- office costs. Many companies today are downsizing their offices and allowing many employees to work remotely. Consider whether this could work for your business, and if not, try negotiating a lower rent. If you pay for utilities, you can also look for ways to reduce those costs.
- Supplier and service prices. It may be time to look for cheaper suppliers or service providers. You can try lowering the prices first, but if that doesn’t work, see if you can find better deals. You may be able to find significant savings.
Be sure to review all of your costs line by line. Small cost savings across the board can add up to a significant amount.
Focus on customer retention
In times of inflation or recession, retaining customers is just as important as acquiring new ones. Here are a few ways to do this.
- Talk to loyalty program members. The customers associated with your loyalty program are probably your best customers, so you can make exclusive offers to them, for example. You have their email addresses, so send promotions or even just messages to keep in touch. You just need ways to remind them of your brand and your products.
- If you don’t have a loyalty program, start one. You can easily find software to create a loyalty program tailored to your business. Many companies use loyalty programs for a reason – they work according to increasing the loyalty lifecyclemeaning customers will be loyal to your brand for longer.
- Ask for feedback. Customers want to know that you care about their experience with your brand. Solicit customer feedback using text or email surveys, then use that information to improve your product or service and your customer support. You need to provide your customers with the best possible buying experience.
- Make purchases easy. If you sell online, use customer accounts to make the buying process easy. Have saved payment and shipping information in their accounts so that they have to enter very little information.
- Personalize the customer experience. Again, if you’re selling online, personalize the customer experience by using data and automation to make product recommendations based on previous purchases.
Consider bundling related products into a package deal if you sell more than one product. For example, if you sell clothes, put together three items as an outfit with a small price discount if you pay for each item separately. This will increase the average amount of your sales and generate more income. Depending on the nature of your business, you can get creative with this, but the key is to make the package of products look great.
Promote profitable products
You probably have items with a higher profit margin than others. If so, you’ll still make a profit even if you discount that high-margin item. Run aggressive promotions for your profitable items with in-store signs, emails, and other marketing strategies. You can offer customers a lot while increasing your sales and profit at the same time.
Diversify your products
If you currently only offer a few products but have the resources to produce other products, consider adding new product lines unrelated to what you currently offer. This can open up new customer markets and diversify your sales potential. For example, if you’re selling a product that people might find obsolete during an economic downturn, offer a product that’s more recession- and inflation-proof.
If the nature of your business allows, you can try to find something to offer as a subscription service to add a new, recurring revenue stream. For example, if you own an auto repair shop, offer a subscription that customers pay monthly that allows them free oil changes every three to six months. You generate revenue even if customers skip their oil changes.
Customize your marketing
You can take advantage of economic hardship to increase your brand’s goodwill factor. You can tailor your marketing to send a message of empathy to your customers by saying “we want to help” or “we care”. Combine this marketing with your promotions on profitable products and you are using two strategies at the same time.
You also need to adjust your marketing strategy to use free and low cost marketing techniques. Spend time, not money, on social media and email marketing. Put together a budget and overall strategy to keep your brand image with customers without breaking the bank.
Get a line of credit
If price increases will have a significant negative effect on your sales, consider keeping your prices where they are and using a line of credit to keep the doors open until the economy takes an upward turn and prices normalize. This way you keep your customers, but you can still meet your obligations.
You can use the line of credit when your cash flow is low to pay suppliers, rent or other expenses.
Be careful. Lines of credit are intended as a short-term cash flow solution, so use it sparingly and pay it off as soon as possible.
Roll out the red carpet for new customers
Hopefully new customers are still coming in and you want to make them happy that they did. Whether you sell online or in person, new customers should have an excellent and memorable experience with your business. An excellent option is to offer a discount on their next purchase from your company.
You also want to maximize your value from each new customer. Let them sign up for your loyalty program and make product recommendations, such as your product bundles or your high profit products.
You also want to get information from them so that you can improve your marketing and keep in touch with them. So at least try to find out how they found you and their email address.
Companies often partner with other companies that offer complementary products to share marketing and sales resources. For example, if you sell clothing, you can partner with a jewelry company to create a marketing campaign. This allows you to get your product to market at half the cost.
Customers may also see more value in what you offer when they think of it in combination with another product. For example, “that dress looked great with that necklace.” It will be a win-win-win situation. You and the other company make a sale and the customer gets a great outfit!
Times of inflation are tough for everyone, but savvy entrepreneurs can weather the storm and sometimes even thrive. It just takes a strategy that uses some or all of the tips discussed. What you can do depends on the nature of your startup business, so consider how these tips can work for you. Think outside the box and be creative.
Also, always remember that the economy inevitably goes up and down. So just do your best to get through the bad times – they will pass and you will be stronger to get through the storm.
The mail Inflation Tips for Startups – Top 11 appeared first on Due.