Coping With The Increased Costs Of Doing Business

It varies across the board, some business owners are experiencing bone-crushing increases in the cost of production or the delivery of services because of increased fuel costs or increased costs of food ingredients, for example. Others will be brought to their knees this winter by a huge increase in heating costs. All are feeling the significant reduction in revenues as an indirect result of these issues since people now tend to go out less, are staying closer to home, traveling less and spending less overall in restaurants, hotels and other destination businesses. What is the best response to these issues?

Some say it’s inflation and must be absorbed, a natural but temporary swing in the market. I say baloney, it’s permanent and we must make permanent adjustments.

I hear this the time: “If I increase the price I will lose my market position and my customers will go elsewhere.” Then let them go. If you do not reflect the increase in your costs they will be going elsewhere anyway as you and anyone else who refuses to acknowledge the increases and reflect them in your pricing will soon be out of business anyways. So, why the indecision?

Here is the deal, the real issue: If you were appropriately tracking, monitoring and controlling your business parameters, you would know exactly what effect these increases have on your business. You would be naturally and constantly aware and responding appropriately to such market swings. If you are deluding yourself, thinking this is a momentary blip on the screen then perhaps you could overlook it, but it is not a momentary blip it’s a permanent change. Even if it were temporary, how could you afford to run your business unprofitably for any amount of time?

As a consumer, I am now seeing an added cost to various invoices such as a fuel surcharge. Just had that happen, actually. I grumbled but I understood its meaning and appreciated it and paid it willingly. Had the store owner simply raised the price I might have reacted differently as it would seem unfair. It makes sense, however, as I understand the pure nature of the cost increases that we are all experiencing and thus I can tolerate this adjustment as there is a good reason for it. But that’s a marketing decision as well as a business decision.

As a business owner we must all learn to operate profitably and that requires a firm grasp on your numbers so you can adjust accordingly and be a brave soul as you make the important marketing decisions required to make certain you are yielding a profit. If you are not, you must raise your price. If you lose your share of market then market more effectively, create a niche specialty, expand your geography, use the Internet, do something but do not hold your price and do business as usual thinking that you have to preserve your revenue. Remember, it’s bottom line not gross revenue that we are fighting for.

Assume the increases are here forever and now make appropriate decisions or get out of the business altogether while you still have a chance. Or, do a workout on debt to reduce break-even, or maybe buy your competition and increase your share of market while decreasing your overall overhead and controlling your market presence. Do something. Doing nothing is a short path to self-destruction.

Were you a well-tuned business operating with complete knowledge of what your numbers were who saw this coming long ago, you would be making the necessary adjustments along the way and monitoring your successful transition. The consumer will pay more for “perceived value” so deliver it. The consumer will pay more if he believes the price increase is fair and just, so explain it. Raise the price to where it has to be to earn a reasonable profit.

In summary:

1. You must be monitoring your business under any circumstances, but in changing times it’s even more important as that’s when it proves it’s worth.

2. If you are monitoring your business you must identify weaknesses and control your costs, including payroll, overhead, cost of goods, marketing and other factors.

3. You must make the bold but necessary adjustments to your pricing to maintain an acceptable profit margin. Market effectively and aggressively.

4. Do preemptive debt workouts. It may be the one factor you can control that will keep you in business.

5. If it doesn’t work and you cannot fix it, close the doors while you still have some capital.

Call me, I can help you navigate these tricky waters. We all need help at times when making these difficult decisions.