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According to CBS News, inflation has soared 8.5% over the past year. That’s the fastest annual pace of price increases since 1981. While businesses of all sizes are vulnerable, it’s squeezing smaller and midsize businesses particularly hard. 80% of small-business owners reported in a Goldman Sachs survey their bottom line suffered due to inflation over the past six months. Of those, 67% increased wages to retain employees, and 61% increased wages to attract new employees. Meanwhile, 60% said they had offset their cost increases by passing it on to consumers through higher prices.
This raises a question for many business owners who don’t want to lose already-suffering customers. Many ask themselves, “What profit levers can I pull to offset rising costs?” Times like these are an excellent opportunity to revisit business school fundamentals. Here are strategies to boost profitability, especially during inflation:
Acquire More Customers
This is an excellent time to examine your marketing spending by channel. In other words, if you’re not investing in pay-per-click advertising or banner ads, how are you lowering customer acquisition costs and enabling your business to bring in more customers without investing more?
Follow Up on Leads
Surprisingly, many qualified leads are squandered when business is good. Lack of follow-up has jeopardized new customer acquisition. Now is an excellent time to revisit your lead development and communication plans and ensure no good lead is wasted. Consider this approach from an ROI perspective: your marketing campaigns have a rising cost-per-lead in an inflationary environment. Now more than ever, the effectiveness of your lead follow-up should be as strong as your lead generation.
Improve Customer Retention Rates
Customer attrition takes place when customers see declining value for the cost of their products and services. Purchasing data generated from customer relationship management (CRM) software can help you understand your customer journeys and get insights into the causes of attrition. When you discover why customers are leaving, you’ll become better prepared to collaborate with sales and marketing on a list of things to improve customer retention. Compiling a comprehensive list of retention strategies, sortable by cost, can invigorate profitability.
Increase Transactional Value
Recent AMR Research showed increasing price by 1% can improve profits by 11-12%, while increasing volume by 1% can maximize profits by 3-4%. The first step is adding value to your existing products or services without adding costs. The second step is considering ways to improve the perceived value of orders. This helps customers justify increasing their order sizes. It comes down to showing your customers that increasing price increases value.
Expand Product and Service Offerings
Even if you’re lucky enough to have a healthy roster of loyal customers producing frequent sales, you may not be capitalizing on the loyalty your brand is earning. Take the time to survey your customers to learn their needs and how they use your existing products and services to create complementary lines. Consider ways to increase your brand’s overall value proposition to maintain customer satisfaction and increase positive word-of-mouth.
Streamline Workforce Costs
As inflation rises, hiring at smaller firms tends to slow down. Inflationary periods are ideal times to maximize the efficiency of your staff. Make time to analyze your team's digital tools to do their work. Are they maximizing efficiency and promoting collaboration? If not, you may be able to do more with a reduced workforce. Technology is the key to profitability and sometimes achieving it simply takes reducing your labor costs.
In summary, successful businesses exercise all their capabilities. Take the time to find yours and commit to integrating it into your sales and marketing strategies.
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