5 Proven Business Growth Strategies When Inflation is High

Business owner thinking about business growth strategies

Your business has faced a lot of financial challenges over the last couple of years and just when it looked like things were starting to ease, we’ve got sky-high inflation. Here’s the good news: With the right business growth strategies, times of high inflation can provide opportunities to strengthen your business’s financial management and operations and increase your profitability.

These proven strategies are easy to implement, low-to-no cost, and will help you rebalance expenses, reduce financial waste, and clear the way for new opportunities.

Finding opportunities during times of high inflation

From the end of 2021 and during the first months of 2022, the U.S. has experienced the highest inflation rates in over 40 years, exceeding 7.5%. No matter what industry you’re in, the current financial climate means that you’ll see the impacts in just about every facet of your operations.

Your competitive advantage now can be to find the opportunities within the challenges. Use these proven business growth strategies to help your business get stronger now and set the stage for long-term success:

1. Understand your costs to identify opportunities

You should always have a clear understanding of costs and how they relate to your average-transaction value (ATV). This is the amount, on average, that your customers spend on each purchase of your goods or services. You can calculate the ATV for your business by dividing total revenue for a set amount of time by the total number of transactions you had during that time.

For example, if your business had 10 transactions and $1,000 in revenue in a day, then your average transaction value is $100; similarly, if you had 1,000 transactions and $1,000 in revenue during that same period, customers are spending $1 per transaction. This amount can change regularly and can vary significantly based on what you offer, so make sure to track your ATV regularly for the most accurate snapshot.

The usefulness of calculating ATV comes into play when you’re figuring out where to make adjustments that will either increase profitability or help you absorb some of the increased costs resulting from high inflation. It can also help you find opportunities for add-on goods or services that can boost your bottom line.

Using the earlier example, let’s say the average bill at your restaurant is $100. When you opened a couple of years ago, it might have cost you $40 to make that $100 (netting you $60 in profit), but now, it costs you $60 (netting you only $40 in profit).

With this as a starting point, you can begin to strategize whether there are costs that can be reduced or eliminated and/or prices that can be raised so that you regain your lost profitability. A regularly updated profit-and-loss (P&L) statement can also help you spot these opportunities.

2. Identify strategic and non-strategic costs

It’s always a good business practice to know your strategic and non-strategic costs, but it’s particularly important in times of economic uncertainty.

Strategic costs are those that can be used to bring in revenue, increase profit, or help you meet short-term goals and contribute to a solid financial foundation. Non-strategic costs are the “nice to do” things that don’t necessarily contribute to the bottom line today but may have a positive impact on your long-term goals.

For example, if you have a toy store, then having inventory of a range of popular toys is a strategic investment. You need to sell toys to attract and retain customers and generate revenue. However, now may not be the time to expand your “Build a Toy” workshops that are great at creating neighborhood goodwill, but cost more than you make on them.

Some non-strategic costs are things that creep into businesses over time and can be eliminated permanently. However, when you find non-strategic costs that you believe can be successful in the long term, see if you can find a way to make them profitable. If not, you may want to put them on the back burner until the economic climate recovers.

3. Review cost drivers to eliminate unnecessary expenses

Reviewing your financials can help you identify excessive cost drivers – areas in which spending exceeds reasonable return – to inform your decisions about which areas to reduce, redirect, or eliminate. Keep in mind that to meet your goals, you may need to increase spending in strategic areas even as you’re looking to reduce costs in others. Figure out the return-on-investment (ROI) for those areas so you can make informed decisions. This is a great time to work with your business management team and/or your certified public accountant (CPA) to identify opportunities.

4. Leverage technology and automation

Technology has changed the way businesses perform everyday functions and can help reduce costs and make your business more efficient. Ask your CPA, business management team, or colleagues if they’re aware of tech that can help you improve operations, or do some research on your own. There are options available to meet just about every business need and every budget. Start small with one or two easy-to-implement improvements, assess the impact, then tweak as needed and keep moving forward.

5. Secure working capital funding

Having ample working capital on hand is often the difference between surviving and thriving. Working capital gives you the financial flexibility to weather times of uncertainty and leverage business growth strategies and competitive opportunities. And in times of high inflation, you’ll have more financial power, whether that’s purchasing inventory and supplies in bulk to leverage discounts or negotiating better costs and terms with your suppliers.

Here are some real-life examples of business owners who have used loans to leverage opportunities:

Pursuit can help

If your business doesn’t have enough working capital to take on these strategies, there are great loan options available. Pursuit offers more than 15 funding options for working capital, inventory, technology, and many more! Get in touch with us today and learn more about how we can help your business grow.

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