Inflation Tips for Startups – Top 11

In October of 2022, the Consumer Price Index was up 7.7% from the same time the previous year. Shelter, food, and gasoline prices are leading the way, which we’re all bearing the brunt of. Inflation has all kinds of side effects for individuals and for businesses, particularly businesses that are just getting started.

Prices for most things you need to run your business are up, which can really eat into your profit margin. However, customers are buying less as well, so the total impact comes from both costs that are up and sales that are down.

On top of inflation, a recession may also be on the horizon, making consumers cut back on spending even more. The good news is that it’s possible for a business to grow during a recession. Here we’ll run down 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 on those costs to your customers. Therefore, you need to analyze your profit margins to determine if you need to raise your prices.

If your costs start exceeding your revenue at your current prices, you may need to bump your prices so that you’re not running at a loss month after month. Even if you’re still making slim profits, you may still need to raise your prices to have enough cash flow to keep the doors open.

It’s a fine line that you have 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 that you can use is to raise your regular prices but then offer sales and promotions that will still give you a profit while giving customers the impression that they’re getting a deal.

How you manage your prices in times of recession really depends on the nature of your business. As a startup, you’re still trying to penetrate the market, so it may be worth it, in the long run, to take some losses temporarily until inflation is under control. That way, you can continue to bring in new customers that will still be with you in better times.

Manage Your Cash Flow

Having cash in hand during tough economic times is critical so that you can meet your obligations. Remember that cash flow and sales are two different things. You can be bringing in revenue but still not have enough cash to pay expenses.

Managing your cash flow effectively involves several things.

• Speed up cash coming in. If you’re a business-to-business seller, you’ve probably negotiated payment terms with your customers. For example, they may pay you 30 to 60 days after the date of purchase. If so, it’s time to take another look at those terms to shorten the time that it takes for cash to come in. Invoice quickly and make the time to pay as short as you can while staying within industry standards.
• Slow down cash going out. On the other hand, you probably have a similar deal with your vendors, paying them within a certain amount of time after 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. Inventory that you hold is cash not in your hand. You need to find the optimal level of inventory that allows you to fulfill orders quickly and keep customers happy while not holding extra inventory that’s just sitting on the shelves. You might want to consider implementing a pull strategy instead of a push strategy.

In a push strategy, you purchase inventory and then try to sell it. In a pull strategy, you wait for orders to come in before you purchase 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 having inventory sitting on your shelves and have more cash in hand.

Analyze Your Costs

When times are tough, you need to look for ways to cut expenses, so you need to analyze your costs across all your operations. You’re looking for items that you can reduce or eliminate. Here are a few costs you can look at.

• Processes. Analyze all the processes within your company to find steps that you can eliminate or tasks you can automate. This can reduce your labor costs or the use of other resources.
• Credit card processing fees. You can try to negotiate lower fees 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 costs. No one wants to lay off employees, but you can’t pay for labor that you don’t need. Take a look at how much you’re paying people and for what and see if you can reduce or eliminate any of those costs.
• Office costs. Many companies these days are downsizing their offices and letting many employees work remotely. Consider whether this could work for your business, and if not, you can try to negotiate a lower rent. If you pay for utilities, you can also look for ways to reduce those costs.
• Vendor and service prices. It might be time to shop around for less expensive vendors or service providers. You can try to negotiate prices down first, but if you can’t, see if you can find better deals. You may be able to find significant savings.

Make sure you take a look at all 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, it’s just as important to keep customers as it is to bring in new ones. Here are a few ways to do so.

• Engage with loyalty program members. The customers who belong to your loyalty program are probably your best customers, so you can do things like provide them with exclusive offers. You have their email addresses, so send promotions or even just “keeping in touch” messages. 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 customized to your business. Many companies use loyalty programs for good reason – they work by increasing the loyalty life cycle, meaning that 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. Ask for customer feedback using surveys by text or email, and then use that information to improve your product or service and your customer support. You need to give your customers the best buying experience possible.
• Make purchases easy. If you sell online, use customer accounts to make the buying process simple. 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 sell online, make the customer’s experience personal by using data and automation to make product recommendations based on past purchases.

Bundle Products

Consider bundling related products into a package deal if you sell more than one product. For example, if you sell clothing, put together three items as an outfit with a slight discount from the price of paying for each item separately. This will increase the average amount of your sales and bring in more revenue. Depending on the nature of your business, you can get creative with this, but the key is to make the package of products look like a great deal.

Promote Profitable Products

You probably have items that have a higher profit margin than others. When that’s the case, even if you offer a discount on that high-margin item, you’ll still make a profit. Run aggressive promotions for your profitable items with signs in your store, emails, and other marketing strategies. You can offer customers a great deal while increasing your revenue and profit, all 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 now provide. This can open up new markets of customers and diversify your sales potential. For example, if you sell a product that people might consider unnecessary 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 have an auto repair shop, offer a subscription that customers pay monthly that allows them to get free oil changes every three to six months. You’re bringing in revenue even if customers skip their oil change.

Adjust Your Marketing

You can take advantage of economic problems to increase your brand’s goodwill factor. You can adjust your marketing to send a message of empathy for your customers by saying, “we want to help” or “we care”. Combine this marketing with your promotions on profitable products, and you’ll leverage two strategies simultaneously.

You should also adjust your marketing strategy to use free and low-cost marketing techniques. Spend time, not money, on social media marketing and email marketing. Put together a budget and an overall strategy to keep your brand image in front of customers without breaking the bank.

Get a Line of Credit

If raising prices is going to have a significant negative impact on your sales, you may want to consider keeping your prices where they are and utilizing a line of credit to keep the doors open until the economy takes an upward turn and prices normalize. That way, you’ll retain your customers but still be able to meet your obligations.

You can use the line of credit when your cash flow is low to pay vendors, rent, or other expenses.

Just 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, you’ll still have new customers coming in the door, and you’ll want to make them glad they did. Whether you’re selling online or in person, new customers should have an outstanding and memorable experience with your company. One excellent option is to offer a discount on their next purchase from your business.

You also want to maximize your value from each new customer. Get them to sign up for your loyalty program and make product recommendations such as your product bundles or your high profit items.

You also want to get information from them so that you can improve your marketing as well as keep in touch with them. So try to find out how they found you and their email address, at the very least.

Build Partnerships

Often, companies partner with other companies that offer complementary products to share marketing and sales resources. For example, if you sell clothing, you could partner with a jewelry company to create a marketing campaign. This allows you to market your product at half the cost.

Customers also may see more value in what you’re offering when they think of it in conjunction with another product. For example, “that dress looked amazing with that necklace.” It becomes a win-win-win situation. You and the other company make a sale, and the customer gets a great outfit!

In Closing

Times of inflation is tough for everyone, but savvy business owners can weather the storm and sometimes even thrive. It just takes a strategy that utilizes some or all of the tips discussed. What you can do depends on the nature of your startup business, so think about how these tips can work for you. Think outside the box and get creative.

Also, always remember that the economy will inevitably cycle up and down. So just do your best to get through the bad times – they will pass, and you’ll be stronger for powering through the storm.

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