Stay-at-home orders during the pandemic pulled workers out of production. But those absences in the spring of 2020 were nothing compared to the Covid fears that followed, the need to care for children, accelerated retirements, the Great Resignation and the lack of immigration. Labor shortages have caused supply chain issues that are now making everyday goods harder to find, driving up demand and prices.
There are also many other inflationary factors: low unemployment, high wages, rising energy costs, rising fuel costs (result of sanctions against Russia for the war in Ukraine), rising interest rates and rising housing costs. And for ordinary Americans and businesses, the latest inflationary blow: Gasoline prices rose 48% in the 12 months ending last March.
Rising fuel costs increase the cost of making and receiving goods sold by many franchise businesses. It also affects the cost of shipping and delivering goods to customers, especially as online sales increase and customers want everything delivered!
Unless you raise prices to offset rising costs, a smaller percentage of every dollar goes back to the bottom line. How are rising fuel prices affecting your business? What is your plan to minimize the impact? Every business owner needs to think about this.
Respond to inflation
How do companies react to inflation? Raising prices is a common approach and almost always necessary in times of inflation. But there are additional actions to consider. Here are some common trading strategies for fighting inflation.
- Sell more – a lower profit percentage on higher earnings can still lead to higher profits overall.
- Watch your numbers carefully – understand where the money is going and use break-even analysis to track your changing cost structure.
- Reduce unnecessary costs, but don’t compromise the customer experience.
- Raise prices – nobody wants to do that, but maybe you have to.
- Improve efficiency to offset cost increases – reduce wasted labor and materials and eliminate unnecessary processes.
- Revisit sales skills and training – focus on activities that increase the average ticket.
- Stay focused – know why and use cascading SMART goals to keep your team on track.
- Delegate to make your team more valuable – you can’t do everything yourself.
- Buy better – take full advantage of preferred suppliers with negotiated discounts.
- Invest in inventory – if cash flow permits, increase fast-moving inventory ahead of price increases.
- Change the sales mix – identify products and services that generate a higher margin and focus buying, selling, and marketing efforts to sell more of them.
- Shrinkflation – change packaging so price changes aren’t so obvious (less chips in the bag).
- Make less profit – that’s what happens if you don’t face the changes.
Anticipate and prepare
Inflation is part of our expected economic cycles. To successfully navigate the path to profit in times of inflation, you need to be on the lookout for and confront the first signs of change.
Good financial habits such as monthly review routines to check SMART goals, financial skills building for managers and team leaders, and ongoing cultivation of vendor and lender relationships should already be in place. If not, now is the time. When change is inevitable, follow these tips:
- Embrace change and find your return.
- If growth is your return, scale up your business.
- Bigger can be better, but don’t sacrifice efficiency or customer service just for volume.
- Invest in your team; develop skills and keep learning.
- Be flexible.
- Embrace technology.
- Be a fixer, not a blamer or victim.
- Have SMART goals and plans focused on your business priorities.
- Look at the numbers and learn from the data.
As has been the trend in business for decades – and it is still true today – you have to do more to do well. Your challenge is to increase sales, improve productivity and control costs without sacrificing customer service, convenience and connections. This is not an easy task, but a necessary effort that will require combining action with intention.
Barbara Nudes is President and Founder of Profit Soup, a financial education organization specializing in providing services to franchisors and franchisees to enable them to trust their numbers, focus on their priorities, make better decisions and achieve more profits. She can be reached at barbara.nuss@profitsoup.com or 206-282-3888.
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