There’s no doubt we’re experiencing massive inflation, and with that comes more pressure on your business and its bottom line. The inflation rate jumped to 7% in 2021, and in a recent Conference Board survey of a group of 900 CEOs, 55% said they expect price pressures to persist until at least 2023.
In these conditions, what can a business-to-business (B2B) or business-to-consumer (B2C) seller do? Luckily, adjustments can be made to lessen the side effects.
Below we’ve identified nine ways you can mitigate the impact of inflation on your business.
1. Suspend Less Profitable or Frequent Stockout Products
Rather than scrambling to fill orders in the face of logistical, shipping, labor and materials challenges, press pause. Halting these items can give customers and resellers clarity and allow you to redirect efforts and materials to what you can deliver.
2. Sell on a Marketplace
Margins are tighter, but by selling on a marketplace you’ll reach a new audience, remove friction, spend less on marketing and potentially be an early mover. Specialized B2B and B2C marketplaces like Avendra (hospitality), Bryzos (steel) and LoveCrafts (art supplies) gained followers during the pandemic. These marketplaces will continue to rise in popularity.
3. Add a High-Margin Service Component
There’s been plenty written about how to raise prices. Buck the trend—keep product prices level and attach a profitable service that addresses a customer pain point. Installation services, online training and marketing or point-of-purchase materials can generate revenue and increase retention. Favor unique, value-added services that can’t be easily replicated.
4. Retool to Recurring Revenue
Monthly recurring revenue (MRR) isn’t just for software as a service (SaaS) providers. Those value-added services can also be sold as subscriptions. One CFO turned CEO began offering a six-figure medical device on a monthly rental basis.
You get a consistent stream of revenue from subscriptions while customers go from capital expenditures (CapEx) to operating expenses (OpEx) and can better acquire needed equipment.
5. Reduce Overhead
Are your raw materials and energy expenses through the roof? Look at costs like rents, office equipment leases and managed services contracts. See if there are suppliers that will offer a price break for signing a longer-term contract.
6. Watch Competitors Like a Hawk
You need to know what pricing moves your main rivals and resellers are making and be prepared to react immediately. Be sure that your everyday processes are running efficiently so you can keep up with the competition. Improving inefficient processes will also allow you to gain insight into unnecessary expenses or excess items as they regularly monitor their effectiveness.
7. Make Strategic Use of Promotions
Think of promotions in terms of pricing correctability. Raising prices by 20% and offering discounts — 5% to 15% — to long-term customers eases the sting. However, it’s difficult to bounce back from over-discounting, so tread carefully.
8. Watch DSO and Limit Credit
How many days, on average, does it take customers to pay invoices now versus six months ago? Days sales outstanding (DSO) KPIs show how your receivables are being managed. High DSO equals low cash flow and indicates a need to tighten terms. Automating accounts receivable processes is a great way to bring DSO under control.
9. Take Advantage of Every Possible Discount
Efficient accounts payable (AP) practices can score early payment discounts from suppliers. Companies with enough cash can typically save 1% to 2% by paying within 10 to 15 days. Signing longer-term contracts may at least head off future hikes. AP automation can help you stay on top of payments!
Make sure your business is prepared for what’s to come with rising inflation rates. Simple adjustments to your current practices and employing the tactics outlined in this article can provide some relief from price pressures to help you maintain your business’ success.
If you’d like to learn how to lessen the impact of inflation on your business with NetSuite, contact us online or give us a call at 410.685.5512.