So, inflation is here. Economists suggest that it will likely drag on for quite a while. Over time, some inflationary trends will dissipate organically.
The challenge is how to determine what ‘relief-valves’ will mitigate the worst of it. The worst of it being the loss of profitability.
According to Forbes Magazine, from an article published in March of this year —
Two critical challenges for businesses:
- Higher cost of goods
- Tightening labor market
The ‘relief-valve’ that is instinctive, and sometimes reactionary, is to mandate a cost cutting agenda. However, that in of itself doesn’t address the unique nature of an inflationary economy.
Forbes suggests three strategies to address high inflation:
- Adjust prices quickly
- Prioritize high-margin products
- Shift input as relative prices change
Small, medium size businesses are much more reluctant to raise prices. The fear is being consumed by larger competitors that can afford to absorb some inflation.
This is the time to dive into the uniqueness of an inflationary economy. Aside from typical fiscal and economic factors, pent up demand is the real wave. This wave has been building for a few years while most were hunkered down during a pandemic.
While demand was mounting, consumer cash-on-hand was accumulating as well. Therefore, consumers can ‘absorb’ some rising costs.
In the B2B world, all sorts of rising costs impact margins. Apply that to your own products. Most B2B products are just a component of what their customers are making or implementing. So, raising prices (as needed) is just part of the equation.
*Prioritize High-Margin Products* —
It may seem counter-intuitive, but maybe don’t ship orders by ‘order date’. Inflation impacts labor costs and supply. Attempt to prioritize your purchasing, production, and allocation to your highest-margin products.
Also, certain products are more amenable to price-increases and won’t meet much resistance with buyers.
*Shift Input as Relative Prices Change* —
This takes real strategic management. It involves looking at all costs. Inflation effects every cost differently. There may be opportunities to switch materials, domestic versus foreign suppliers, etc.
As these costs fluctuate, adjust your product mix, what materials you need to keep on the shelf. What materials can be kitted for in real-time use?
Examine cost of inventory-on-hand and the potential benefit of lowering levels and adjusting production schedules.
The biggest struggle with Inflation is that the impact can derail a company from their steady course. It doesn’t have to. It just has to be managed.
And most importantly, don’t sacrifice your sales & marketing mix. Customer acquisition and retention IS the goal and that doesn’t fluctuate.
Read the entire Forbes article here.
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