What Is Increase And How Does It Affect My Business?
What Is Increase And How Does It Affect My Business? – Inflation is an economic phenomenon that gives business owners nightmares because it is usually linked to lower sales, lower revenues and a shortage of cash flow; Fortunately, there are a few ways to reduce its havoc.
So far, 2022 has been a year with no optimistic forecasts regarding inflation. For example, according to a note from El Financier, the Bank of Mexico “updated its forecast for inflation, since it now estimates that it will close 2022 at 4%” when it was forecast at 3.5% in December 2021.
But what does all this refer to? Why can this data affect your business? And, can we do so that our companies do not suffer such a decisive blow that this phenomenon can bring as a consequence? At Oyster, we’ve taken it upon ourselves to do some research and help you better understand what inflation is all about.
What Is Inflation? – Increase My Business?
Surely you have heard -or have experienced the famous “it’s not enough for me anymore” in your flesh. One goes to the supermarket with the same budget, but “it is no longer enough” to buy everything. One wants to fill the tank of a car, and “it is no longer enough” because the price per litre is now higher. You want to buy supplies for your business, and “it is no longer enough” because their prices have risen. All this is a consequence of inflation.
In simpler words, inflation increases the price of goods and services over time. It causes that the money yields less and, consequently, that less bought. You will ask, why does it happen? The causes are various, but it usually occurs due to an increase in the demand for goods and services, causing the productive capacity of a country to be unable to cover it. The consequence? Scarcity and rising prices.
Although the outlook is very harmful, inflation is not always considered negative; it estimated that it will increase by 2% annually to stay “healthy”. The problem comes when the rate exceeds this estimate (as we saw at the beginning, in Mexico, it is estimated that it will double by the end of 2022 ). That is why it is essential to measure this phenomenon regularly.
In Mexico, the INEGI measures the National Consumer Price Index (INPC), which reflects how the prices of the goods and services that all Mexicans consume versus our income vary. These reports are updated weekly, fortnightly, monthly and annually. With this information, the Bank of Mexico is in charge of regulating the amount of money circulating in the country.
How Does Inflation Affect My Business?
It is important to note that current inflation has emerged from an atypical situation; that’s right, we mean the pandemic. In 2020 the whole world stopped. Factories closed, raw materials were no longer produced, and people stopped shopping as before. After the vaccination, many people have resumed their activities and have begun to buy heavily again. However, the great demand has not been met, leading us to suffer the consequences of inflation.
So, if the prices of raw materials have grown and the demand also has, this will affect your business, resulting in your prices have to rise to cover your costs. But that’s not all: inflation can also bring you difficulties as a business owner.
You could find that today it may be more expensive to run your business. Not only do raw material costs increase, but they can be scarce, so you may not even find what you need to operate. Your costs per employee may increase, but you may also notice that your customers are not buying as much as they used to.
Inflation Affects Some Financial Products Focused On Entrepreneurs – Increase My Business?
Likewise, inflation affects some financial products focused on entrepreneurs, such as business loans, because their interest rates tend to rise since profits are based on the “real rate of return” that usually turns negative. For financial institutions, thanks to inflation.
In other words, if you obtain a business loan that charges you an interest rate of 8% per year, but the rate of inflation is 10%, then the real rate of return becomes harmful for the financial institution by 2%. The consequence? Yes, the interests have to go up because nobody wants to lose. But all is not lost: Although snowball seems negative, there are ways to deal with inflation as a business.
How To Protect My Business From Inflation? – Increase My Business?
Surviving a phenomenon like inflation is possible as a business owner. The important thing is to inform yourself, put all your creativity on the grill and take actions that allow you to face difficult times with strategy; Therefore, here we share some recommendations:
Look Inside Your Company And Be The Best.
Despite everything that happens in the world, there is no better time to pay attention to your project and invest intelligently. Get down to work to improve your processes and become the best at what you do. Increase your knowledge and overcome your methods. Constantly measure the success of your business and find out how to adapt to such a situation in instruction to offer a better service. You will see that this will bring better adaptation strategies, even you will be able to limit expenses to make your prices more efficient without the need for the increase to work against you.
Think Carefully About Your Pricing Strategy.
In the face of inflation, it becomes tough to maintain current prices; however, creating a pricing strategy can go a lengthy way to help you avoid losses. One of the factors that you must take into account is your competitors. If your prices are higher than theirs, they are likely to “steal” customers from you. On the other hand, identify well which products could cause problems due to their price increase; if you leave these products the same but increase the price of goods that would not generate so many issues, you would be preventing losses. Another recommendation is that maybe you maintain or lower the cost of your flagship product but increase it in others so that when they buy your best outcome, they also buy others taking advantage of the visit.
Thoroughly Review Your Processes – Increase My Business?
These are times to save and reduce all those unnecessary expenses. Review your production process in detail and find ways to reduce its cost. Also, reduce waste as much as possible but constantly strengthen and improve your operations. Remember that all money saved will reflected in your final balance and improve your cash flow.
Be Creative When Selling – Increase My Business?
These are times when improving your sales becomes a short-term goal. Implementing innovative attraction and conversion strategies becomes necessary but applied to your existing customers rather than attracting new customers. Ensuring their loyalty and participation is key to surviving inflation. Also, remember: a new customer costs much more than investing in your existing customers. According to Forbes, “attracting a new customer can cost five times more than retaining an existing one. Increasing customer retention by 5% can increase profits by 25% or even 95%”.
Plan Your Cash Needs Well And Expand Your Collection Methods.
Make medium-term expense and investment forecasts to know how you should move your cash flow. So you will prepared to cover the basic needs of your SME without falling into unexpected problems. Likewise, bet on technologies that allow you to improve the finances of your business and that give you more income for each sale you make.
At this point, Oyster is your perfect ally since it offers you Oyster Link, a way to generate online payment links to send them by any electronic means you decide to your customers and suppliers so that they can pay you -without pretexts- by card, cash or by SPIE. With one of the most competitive sales commissions, everything in more income per sale.
In addition, it gets you out of the way of investing in point of sale terminals. Monthly rents, meeting sales minimums, purchasing supplies, etc. Compare our service and determine how much it costs your business to collect online with Oyster Link.
We hope that this info has been valuable to you. If so. Do not forget to share it with your fellow business people because being better informed. Will help us survive tricky times such as those that inflation makes us live at the time. Until the next blog entry .