Ways to beat Inflation

MANAGING YOUR BUSINESS THROUGH INFLATIONARY TIMES

Sydney Wayman, the Adjunct Lecturer

The current business environment is extremely challenging. Effects of the pandemic, and the continued concern overing monitoring the impact of new variants have strained the supply chain and altered consumption patterns. With this, government pandemic assistance put billions of dollars in the hands of consumers.

And now we find ourselves dealing with 8.6% core inflation, and energy and food inflation of 34.6% and 10.1% respectively. Some will argue the increase in inflation is of the “cost-push” variety (where increasing production costs decrease overall supply), while others would argue it is of the “demand-pull” variety (where increasing incomes increase overall demand).

Regardless of its cause the current inflationary environment is challenging for business owners. In this environment production and operating costs are likely increasing, while revenues are likely falling. If you are managing a business during these inflationary times, here are some things you should consider.

1. Know your numbers

It is important you know your contribution margin (sales minus product costs), your contribution margin ratio ((sales minus product costs)/sales) , and your fixed costs. You’ll need to track them as you manage the business during this time.

2. When product costs increase, raise prices proportionally.

If product cost increase, raising your prices proportionally will maintain your contribution margin ratio, but your contribution margin may fall as some customers stop buying. Instead of raising prices or to reduce the magnitude of any prices increase, re-package your product, offering less for the same price.

3. When components of your fixed costs increase, raise prices and reduce costs.

Remember, increasing your prices may lead to lower sales, so also look for ways to reduce your costs. In this vein, increasing productivity is a means of reducing costs, so look for ways to streamline production, marketing, and operating processes.

4. Create and offer promotional packages.

Find ways focus attention on your higher margin products using them as anchors in cross-selling an up-selling packages. This can enhance the perceived value of your offerings.

5. Take advantage of technology.

In line with streamlining processes, leveraging technology may offer ways to lower operating costs. Look for ways to automate processes and procedures that lend themselves to such.

It’s a challenging time to be in business, but with a little hard work you can finds strategies to recover some and maybe all the profits lost to higher costs.