In recent years, many parts of the world have experienced a turbulent economy due to high inflation—the increase in product and service prices.
Take the Philippines, for example. According to the Philippine Statistics Authority, the country’s inflation rate reached 8.6% in February 2023, a drastic increase from 3% in the same period last year. As inflation increases, the purchasing power of money decreases, pushing people to spend less.
However, businesses also have an equally challenging time during inflation. They face higher production costs, reduced profit margins, decreased investment, and even the risk of closure. Moreover, market uncertainties during inflation make them focus on the short-term rather than the future. For these reasons, they must act nimbly to weather this storm.
If you want to know how to overcome inflation, use this article as your guide and emerge stronger as a business.
8 Options Businesses Can Take to Overcome Inflation
Beating inflation as a business may be challenging but not impossible. Here are eight ways you can overcome it and grow as intended.
1. Increase prices
You’ll likely have more difficulty compensating for business losses if you retain your product or service prices amidst inflation. As such, increase your prices to cover production and distribution costs and sustain your business.
Ensure your increased prices align with market trends and consumer preferences to avoid pushing them away to more affordable alternatives to your products or services.
To start, review factors such as the cost of goods sold, profit margins, cash flow statements, and sales or revenue forecasts to learn how to increase your prices to compensate for expenses and increase profits.
You should also see what pricing model will work for your customers. Naturally, you shouldn’t set prices beyond your customer’s budgets. Conduct market and competitor analysis to create a pricing scheme that aligns with your customer’s needs and preferences.
2. Change pricing models
As inflation erodes the purchasing power of money, consider changing your pricing models to maintain profitability, remain competitive in your field, and manage customer expectations.
For example, if your fixed contract price from your existing customers is not as profitable as it should be, you can offer a more flexible hourly rate, which can be more lucrative for you and more affordable for your prospective client. Similarly, if your product is a subscription-based software or app, you can offer it with a freemium model pricing to increase your user base.
However, don’t take this decision lightly, as backtracking to your previous pricing model may anger the user or client base you’ve built up since using a more affordable scheme.
3. Scrutinize expenses
Raising prices and changing pricing models may not always be feasible in a competitive market, so you must look for other ways to control costs. The best way is to review your expenses regularly and identify areas where you can save.
For instance, you can opt for remote or hybrid work arrangements if your employees can work just as efficiently as they would in an office. Doing so will help you save on rent, electricity, equipment, and additional labor. Alternatively, you can downsize to a smaller office if your operations require physical attendance.
You can also reorganize tasks or outsource certain business functions to streamline your operations while keeping costs low. More on this point later.
4. Review your offerings’ profitability
As market trends and consumer preferences constantly change, it’s worth checking which of your products and services are still profitable. You can focus on selling more lucrative offerings, allocating resources more efficiently, and pricing your products and services better to offset the impact of inflation.
Reviewing the profitability of your products and services can also help you identify areas for improvement, investment, and divestment. If a particular offering is not profitable or not bringing in sales, you can tweak its pricing or deliverables to make it more appealing to the market. You can also remove them from your offerings to simplify your operations.
5. Sacrifice profit margins
Every business would want its revenue to exceed expenses. However, doing so may be more difficult in the face of inflation. With that said, consider reducing your profit margins to avoid passing on the burden of higher prices to your customers. Retaining your price can pay off by maintaining your market share and increasing customer loyalty.
6. Streamline processes
Work inefficiencies, delays, and errors due to manual processes cause businesses to spend more, which is unacceptable during inflation. As such, consider automating some of your functions to streamline processes, eliminate avoidable costs, and grow operations.
For instance, you can use chatbots to improve customer support and plug-and-play artificial intelligence solutions to extract and analyze relevant business data. You can also automate repetitive tasks to free up more working hours for your employees.
With technology becoming increasingly valuable, a 2023 study found that one-third of small and medium-sized businesses may invest further in automation and digital tools by 2026 to compensate for labor shortages, reduce manual processes and human error, and boost productivity.
7. Diversify income streams
Rising costs often lead to higher prices for goods and services and a more challenging market. With consumers spending less on non-essential products with their disposable income, businesses feel more pressured to differentiate themselves from competitors and attract customers.
To overcome this challenge, consider diversifying your income streams, changing your product lines, and exploring new markets. For instance, you can create new products if you offer manufacturing services. If you’re a software development company, you can offer paid apps, subscription plans, product licenses, or affiliate marketing opportunities.
Alternatively, you can use existing resources more efficiently if you can’t afford to start new income streams. You can offer evergreen data like online courses or ebooks or lease your business space to other companies.
The possibilities are endless when expanding your horizons. Just ensure you explore lucrative income streams to continuously increase your revenues and become less vulnerable to economic fluctuations.
8. Consider outsourcing
Outsourcing is a popular business strategy that can help you reduce costs and stay competitive in the face of inflation. Delegating certain business functions, such as HR, finance, customer service, and IT, allows you to focus on your core competencies and allocate resources more efficiently.
Moreover, outsourcing can help you reduce recruitment, onboarding, hiring, and training costs. Hiring skilled professionals ensures you can grow faster and more efficiently, minimize operational delays and errors, and take advantage of lower labor costs.
These benefits are helpful if you’re a startup or small business planning to scale faster or large cooperation looking for more growth opportunities.
Beat Inflation With a Skilled Workforce
While often difficult to overcome, inflation encourages businesses to survive with limited resources and by thinking outside the box. Use the strategies above to learn how to survive high inflation and thrive in the long run.
If you need help finding outsourced and offshore employees to avert the effects of inflation, approach a reliable recruitment firm in the Philippines like Manila Recruitment. We offer access to highly-skilled, compassionate, and well-equipped workers who can help your business grow.
Contact Manila Recruitment today to fulfill your outsourcing and offshoring needs!
