Q: I own a bakery and one of our unique selling points is that we deliver. But now gas is at $4 a gallon. Not only that, but my main supplier just raised prices for flour and sugar. I don’t see how I can keep my business going without raising my prices, but if I raise my prices, can I keep my business going? Help!
A: There is no doubt that inflation is beginning to rear its ugly head and that that is making life difficult on many businesses. I mean, what isn’t going up in price? Aside from looming $5 a gallon for gas, consider
• Travel . “All forecasts call for higher airline and hotel prices in 2011.” USA TODAY
• Coffee . If you go to Starbucks, you know that skyrocketing wholesale coffee prices have impacted your cuppa Joe
• Underwear, even. Hanes Brands raised prices recently due to cotton increases and may do so again this summer. How much? Consider that you may have to pay 30% more, all told.
Of course this all filters down to the business entity that can least afford to handle higher prices – the small business. Our margins are typically razor thin and there usually is not a lot of fat in the ol’ budget to cut.
So what do you do?
That’s what you pal Steve is here for. Here are my Seven Ways to Deal with Rising Prices:
1. Copy the big boys . Large companies often have to deal with the issue of how to keep prices steady in the face of rising costs, and they do so in ingenious ways, ways we can emulate.
One of the main tricks of the trade is to reduce the size of a portion of a product. For instance, whereas a candy bar might at one time have been, say, 6 oz., the revised size might be 5 oz. There are two benefits to this. First, the cost of the bar stays the same, while the manufacturer saves 1/6 in the cost of production. Second, a reduction in size by 1/6 may not even be noticeable to the consumer, and even if they do notice, most would rather pay the same for a little less than pay more.
The baker above could make her croissants and bear claws a tad smaller for instance.
2. Use higher costs to your advantage : In the alternative, what about making a bigger version of your product and hiding the price increase in that? Or consider having a sale on products that are not costing more and using that as a loss leader to get people to buy other items.
3. Work with your supplier, or shop suppliers : A larger company – your wholesaler or distributor – is probably in better position than you to absorb a cost increase. Explain that you simply cannot afford to pay higher wholesale prices. If you are a good customer, they will want to work with you.
And if your wholesaler won’t work with you, look for another. Someone will be hungry for your business.
4. Conserve . Drive less. Use less gas. Reuse things that do not have to be discarded. Buy used instead of new. Turn off the heater and keep the AC off. Give a reward for the employee who offers the best way to cut costs.
5. Go virtual : Here is a radical idea, but it can work: I have a pal who recently closed his office altogether. He didn’t go out of business, he just sent everyone home. They all telecommute now, use an intranet, and stay in touch via email, phone and text, just as they did before. They meet once a week for breakfast to go over business, just as they did before. But he doesn’t pay rent and associated costs anymore.
6. Raise prices : Of course I don’t like telling you to raise your prices, and you don’t want to raise your prices, but you might have to. While any business fears losing customers because of higher prices, there are ways to raise prices without it being catastrophic:
• Announce it: Don’t just spring it on your customers or clients, give them some warning. Explain what is going on and why you need to raise prices and ask them to stay with you. Most will.
• Don’t do it across the board. If possible, try to not raise prices on everything, but only on selected items that require it.
• Sweeten the pot: Offer a freebie, or a discount on a future purchase.
• And be sure to boost service.
7. Suck it up: If you simply can’t bear to raise your prices, don’t. Just be willing to make less.