“Inflation is when you pay fifteen dollars for the ten-dollar haircut you used to get for five dollars when you had hair.”
—Sam Ewing
While this quote is humorous, it also bares a serious undertone as it relates to the current economic climate we are all facing, particularly small businesses. But what exactly is inflation, and how can small business owners keep up with its effects?
What Is/Causes Inflation?
This video provides a quick answer to what inflation is, but let’s dive in a little deeper. Inflation, as defined by Investopedia is, “a decrease in the purchasing power of money, reflected in a general increase in the prices of goods and services in an economy.”
Essentially, supply shortages = price increases.
In 2021, the US economy was severely affected by supply shortages due to the Covid pandemic. Unexpected financial expenditures such as: federal stimulus payments, vaccine rollouts and the re-opening of the economy directly impacted revenue. As a result, small business owners may be wondering how to keep up with inflation in order to maintain their business and keep customers happy.
How Inflation Impacts Small Businesses
Inflation affects every business differently. And depending on what industry your business serves; pressures of inflation can be felt at various times. A salon owner for example may be impacted immediately due to supply & demand. The pandemic slowed down distribution of goods, therefore hair products and tools were not readily available—which ultimately delays business revenue.
To address this challenge, there are strategies entrepreneurs can take to tackle inflation.
Strategies to Manage Inflation
As stated above, inflation can have a unique effect on every business. Here are three strategies small businesses (specifically salon owners) can use to manage the influence of inflation.
1. Replace Your Price Model
- Adopting a new price model is advantageous because it’s less intimidating than raised prices. It also allows business owners to attract more customers using methods like tiered pricing or product bundles.
- Research and identify what makes your business different from competitors. This will help your organization stand out and get recognized for its individual service offerings.
2. Invest in Technology
- Automated technology is a great way to save money. Because of inflation, some companies are forced to let go of staff in order to recoup costs. Having a reliable software with automated features can help fill in the gaps.
3. Communicate with Your Clients
- As changes are being implemented, keep your clients informed. Being caught off guard with new prices can be awkward for both business owners and clients. To circumvent this, send out communications to customers via marketing or email tools and avoid any possible misunderstandings.
The economy can be unpredictable; businesses should stay prepared for unexpected financial events. Host meetings with your finance team on a regular basis to discuss what strategies work best for your business, and invest in tech that will keep your business growing and your customers happy.