For business owners, the past year or so has not been easy. Just when we thought the worst of the pandemic and lockdowns were behind us, inflation and cost-of-living pressures arrived to spoil the party.
It’s only natural to feel a bit concerned about the future. What comes next and what can you do to make sure your business stays afloat through it all? In this article, we offer five actionable tips.
But first, let’s quickly recap where we’re at. Over the 12 months to December, the consumer price index rose 7.8%. The Reserve Bank has responded by consecutively hiking interest rates, most recently in February, in order to control inflation (higher rates are intended to cool demand and reduce spending).
Most economists are predicting at least two, possibly three, more rate rises of 0.25% in 2023 before price rises start to cool down the following year and bring us back towards the RBA’s target of 2–3% inflation.
There is some good news though. While Australia is likely to see weak economic growth over the next year, we’re unlikely to go into a recession.
Still, what financial advisor Victoria Devine (Zella and She’s on the Money) told Square last year remains true.
“For lots of Aussies, everything feels expensive right now and, as a result, many consumers may be moving to reduce the amount they spend on non-essential items, which could impact your business. Importantly, we need to remember that economic ups and downs are normal and that there are things we can do to safeguard our businesses from any negative repercussions,” Victoria said.
So, what are some of the things we can do?
Firstly, give yourself a pat on the back. Your business survived the pandemic and its associated stresses. Or maybe you only launched recently, and you knowingly did that in the current environment. Either way, you are bold, creative and resourceful – here are five areas you can concentrate on as you navigate changing consumer spending habits this year.
Strategically raise your prices
Inflation means that you’re probably paying more for everything across your business. Unless you increase your prices, your profit margins will suffer. You likely need to put prices up – but be smart about how you do it to avoid scaring customers away.
That means adding only as much as you need and only on the products that most affect your product margins. You might be able to run with a reduced margin on something you sell less of, for example.
If you are raising your prices, it’s important to communicate how your products or services benefit your customers. This helps them understand the value you give them and justifies their investment, even at a new, higher price. You can let your customers know that inflation means you’ll have to raise prices soon by running a last-chance promotion at the old prices.
Review your business operations
Take a step back and figure out what core services or products make the most profit for your business. You may need to cull any underperforming lines. At the same time, look for efficiencies across your processes and staff hours.
This doesn’t have to mean letting people go. By automating low-value tasks you can shift team members’ hours towards revenue-positive tasks like being with your customers. If partial automation means they’re spending less time managing stock, for example, you can also take the chance to upskill them in areas that have more impact on your bottom line. Square has a range of automation tools to help you spend more time with your customers.
Reviewing your business operations is also a good time to cancel any subscriptions you’re not using, review your insurance policies and, potentially, renegotiate your lease.
Review your finances and take a line of credit if necessary
Once you’ve reviewed your business operations, it may be useful to explore taking out a loan or line of credit to create a buffer in case profits dip. It’s a good idea to research what options are out there for your business and to get prequalified so you know how much you can borrow. You may not need it but with pre-qualification, you’ll have peace of mind during any downturn.
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Don’t cut back on marketing
If you’re looking for ways to save money, your marketing budget probably seems like an easy area to scale back. But it’s not necessarily a good idea to reduce your marketing efforts when inflation and cost-of-living expenses are squeezing your customers.
In this environment, competition is even more fierce as customers look for ways to save. If you’re not advertising and they’re not aware of you, they may look elsewhere. Instead, you could continue marketing but follow strategies that will bring in new customers who can afford your strategically increased prices. Or you could run a campaign emphasising the value you offer your existing customers.
It helps to understand the consumer mindset during tougher times. Way back during the Great Recession (2007–2009), the Harvard Business Review published a lengthy article on how to market in a downturn. In it, the authors split consumers into four groups: “slam-on-the-brakes”, “pained-but-patient”, “comfortably well-off” and “live-for-today”. Similarly, they separated consumers’ perceptions of goods and services into four categories: essentials, treats, postponables and expendables (those they can go without). The article then provides a matrix with strategies for marketing each type of product to each mindset. It’s well worth the read – while much has changed since 2009, the underlying psychology remains the same.
Of course, if you’re able to save money and maintain brand awareness that’s a win-win. Here’s our roundup of 25 low-cost marketing ideas.
Seize opportunities and position for recovery
Just as the Covid-19 pandemic presented businesses with strong opportunities – the rise of virtual try-ons in fashion, for example – there are positive outcomes for those that understand how consumer behaviour changes during a downturn.
That might mean you diversify with a lower-priced “fighter brand” that becomes part of your permanent inventory after the recovery. Or you might find creative ways to reward loyal customers even as they’re spending slightly less – you’re playing the long game to keep them with you when things get better.
To position for the inevitable recovery, consider how this temporary downturn, the ongoing pandemic and the major existential threat of our time, climate change, all contribute to a long-term shift in consumers’ values and attitudes. Sustainability, quality over quantity, memory-making experiences over mere things, greater expectations around corporate social responsibility – these trends are here to stay.
By responding to any downturn we see this year with purpose, vision and leadership you’ll be in a stronger position to grow once interest rates and upwards price pressures eventually fall.
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