Understanding Economic Trends

Economic fluctuations can feel like a relentless rollercoaster, with inflation driving prices up and occasional slowdowns providing brief relief. Small businesses find themselves navigating these turbulent waters.

Pressure mounts as market prices for supplies rise, forcing small-business owners to consider how to shield their companies from inflation. This concern is particularly relevant for entrepreneurs like Pavel Stepanov, who leads VirtuDesk, a virtual assistant service catering to entrepreneurs, real estate agents, and various professionals.

In a discussion with marketers Ivana Taylor and Iva Ignjatovic, Stepanov highlighted the shared challenges faced by small businesses today.

Insights from Industry Experts

Taylor, founder of DIYMarketers, aims to help small business owners manage overwhelming pressures. Ignjatovic specializes in marketing, strategy, and business consulting. All three have felt the pinch of rising costs and the struggle to manage them.

According to Stepanov, “The most prevalent effects of inflation on small businesses include supply shortages, rising costs, and reduced profit margins.” He noted that the Federal Reserve's projections of low inflation alongside increased interest rates could hinder economic growth, particularly for U.S. entrepreneurs.

“VirtuDesk has identified several harmful inflation effects,” he added, including:

• Increased business costs
• Price hikes
• Shrinking profit margins
• Supply chain disruptions

Despite these challenges, Stepanov reported, “We haven’t experienced significant inflation impacts on our business yet, largely due to our outsourcing model.”

The Challenge of Pricing

In contrast, Taylor expressed a grim outlook: “With prices rising universally, small businesses must also increase their prices or risk shutting down.” She criticized large corporations for their pricing strategies.

“They continue to raise prices, particularly for essential goods and services, simply because they can. For instance, despite the price of oil remaining around $115 per barrel, gasoline prices have soared above $5 per gallon. What’s the explanation for this discrepancy?”

Taylor also voiced her dissatisfaction with the Federal Reserve’s actions prior to the pandemic, stating, “Their intervention boosted the economy unnecessarily. Now, the economy feels like a runaway train, hard to rein in.”

The risk of a recession looms, with Taylor warning, “Deflation could also occur, as we partially experienced during the pandemic. We should learn from these disruptions, running businesses sustainably by controlling costs and setting value-based prices.”

The Realities of Supply Chain Disruptions

Recent reports indicate that 75% of small-business owners have seen a rise in supply costs, yet only 40% have adjusted their prices accordingly.

“Ignjatovic explained, “Inflation affects small businesses in numerous ways, from soaring prices to securing loans and cutting expenses. Some businesses may even face employee layoffs.”

Essential Products and Services

“Essential products don’t leave much room for maneuvering,” Ignjatovic noted. “Customers often lack alternatives. It’s vital to protect your business through strategies like outsourcing.”

As many entrepreneurs aspire for economic stability, Ignjatovic remarked, “As a solopreneur, I long for the opportunity to thrive in a stable economy. I’ve tied my business to strong global markets; we’ll see how that unfolds.”

Despite inflation’s challenges, some business owners have managed to weather the storm. Taylor stated, “I’m fortunate to rely on tools I subscribed to before inflation escalated. A great tip shared in our Masterclass was to price your services as if you were a larger enterprise.”

Adapting to Digital Sales

As reported by Bank of America, 44% of business owners are gearing up to shift their sales strategies toward digital platforms over traditional outlets in the coming decade.

“Ignjatovic affirmed, “I’m reluctant to raise prices right now. I believe the best approach is to stay aligned with ongoing changes.”

With loyal customers, Stepanov noted, “Our rates remain competitive, reflecting the benefits and support we provide.”

Emphasizing Value Over Price

Taylor focuses on linking pricing to overall value rather than mere transactions: “Lowering prices means sacrificing services or features.”

Ignjatovic shared her perspective: “My existing clients haven’t requested price reductions. New clients often seek discounts or bundled offers. Any price adjustment would need to create mutual benefits.”

Navigating Workforce Challenges

According to ZDNet, many business owners are working longer hours, with 46% reporting increased workloads and 29% having to reduce their own salaries.

Ignjatovic expressed, “Some clients have reached out to stay informed about the situation. However, instead of merely adjusting prices, I prefer to create new service packages.”

Leveraging Consumer Feedback

“Listening to customers is key,” Taylor emphasized. “Identify their unmet needs and seize profit opportunities.”

Taylor’s insights align with DIYMarketers’ article on effective marketing strategies during inflationary times.

Avoiding Common Pitfalls

Taylor cautioned against the common mistake of raising prices while cutting quality. “Many local business owners unfairly blame employees or economic conditions. As business owners, it’s our responsibility to provide genuine value at fair prices.”

Ignjatovic echoed this sentiment, urging business leaders to avoid blindly following trends: “Examine your business closely. Combat inflation in ways that benefit both your business and your clientele.”

The Future of Pricing Strategies

Looking ahead, Stepanov suggested that businesses might be tempted to revert prices back to pre-inflation levels once economic stability is restored. However, he warned, “This won’t apply universally; it will depend on individual business models and offerings.”

Taylor added, “Inflationary periods might encourage consumer spending before prices rise again.

Conclusion: Preparing for the Future

As Ignjatovic stated, “Inflation doesn’t simply conclude; there’s a recovery phase to consider. The world will change post-inflation, and if feasible, prices should adjust accordingly.”

Taylor provided a final piece of advice: “Establish an ascension funnel to guide customers from lower-priced to higher-priced offerings.”

In a rapidly evolving landscape, Ignjatovic reminded us, “While inflation-proofing a business may be impossible, leveraging technology, automating processes, and enhancing productivity can ease the burden.”

About the Author

Jim Katzaman works at Largo Financial Services and has experience in public affairs for the Air Force and federal government. Connect with him on Twitter, Facebook, and LinkedIn.

Disclaimer

This article is meant for informational purposes only and should not be viewed as financial advice. Consult a financial professional before making significant financial decisions.

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