Today’s small businesses need to stay creative in their approach to the pricing of their products and services. This is due to the fact that inflation has been a challenge for most economies, cannibalizing the gains that businesses make.
Inflation can simply be described as the general increase in prices of goods and services. When the general prices go up, the unit currency or what a cedi could buy usually reduces. This simply means that the purchasing power of the customer shrinks. If Abena used to buy 5 units of bottled water at 10 cedis, but now can only access 4 units of bottled water with that same 10 cedis, we can describe that as inflation.
Many small businesses have to stay innovative in the face of rising local and global inflation as it is unlikely that a downtrend is around the corner, especially with the incoming festive season. More of the negative impact of inflation is likely to be on the horizon according to trends during Christmas and New Year events.
As a small business owner, there are a few steps you can take to hedge your business against the negative effects of small business:
Avoid credit sales. Yeah, I know. That is a tough one to navigate. The more you sell your products and services to receive money at a later time, the higher the risk to your business. Credit sales put your business in a position where your liquidity remains in the pockets of your customers who may or may not pay you. This is a risk. In a case where there is no option but to accept a credit sale, take a down payment of 30%-70%. You can even hedge against default by adding punitive measures of 1% interest or charge when customers default on their payment schedule and this should be had in writing. This is a business- not personal.
Engage in strategic promotions. As a business, you can initiate promotional campaigns to elicit immediate demand for your products and services. You can notify your customers to patronize now at the current rate or face an upward price adjustment of 10% in the next two weeks or next month if they do not patronize now. This is an excellent way to increase demand so you can get liquidity to restock in anticipation of a general price increase from your suppliers. Also, you will be able to get rid of old and near-expiring products.
Communicate with your customers. They know what is happening in the economy. They will understand as long as you keep them in the loop. You are in this together. Always explain to customers why there is the need to increase your price and while at it, stay professional.
Improve productivity and traceability. Work more efficiently and track your inventory. Leave nothing to chance. This could determine your bottom line. Plug into apps like Oze that enable your business to seamlessly improve traceability.
With the Oze app, your business can determine areas of improvement or categories that bring in more income as against products that do not.
Examine your value chain. Determine which activity along the chain you are good at and the activities you are not but can outsource at a reduced cost. Accessing areas where you are hemorrhaging money as a business and stopping this leak prevents you from jacking up prices all the time. This will help your business reduce operational costs and bring more value to the customer.
Inflation is a dangerous monster with the potential to erode all the margins in your business. Every business owner should constantly be on the lookout for innovative ways to remain competitive and bring value to their business. Hopefully, implementing these tricks could help your business survive and remain competitive.