How Are Small Businesses Impacted By Inflation?
Inflation rates are at their highest since 1982, and small businesses have been taking a hit. The consumer price index, which measures prices of goods and services, increased 8.5% in March of 2022, while the price paid by wholesalers increased 11.2%.
A survey from MetLife and the U.S. Chamber of Commerce found that 85% of small business owners were concerned about inflation. It might seem your small business cannot catch a break, from losses from the pandemic to dealing with inflation. The good news is that making strong marketing investments in your business can help you grow in the long run. If you are running a small business, these are some of the ways you might be impacted by inflation:
Higher costs to run a business
Most small businesses were hit with a 20% or more increase in cost due to inflation. This is mostly because the supplies and services needed to run the business were more expensive during the recession.
Reduced overhead expenses
As a result of inflation, many small businesses are finding themselves cutting overhead expenses in an attempt to manage costs. For example, you might reduce inventory, cut marketing costs, and look for ways to save. Some of these cost-cutting methods are beneficial, and some will only cause more problems. That is why it is so important for small businesses to be strategic, especially during tough economic times.
Tighter profit margins
When we talk about profit margins, we refer to the amount that your revenue exceeds business costs. For example, if you are running a plumbing business, you will need to set aside some funds from all the money you make for expenses like your van, tools, and team members. When costs like the gas to run your van and the amount you pay your team rises, you will find that your profit margins are smaller.
How To Reduce Expenses To Combat Inflation
There is good and bad news for small businesses worried about inflation. The bad news is that there is no true end to inflation. That is because the value of money is always changing. Even when inflation is not rising, it typically does not mean that prices will drop. It does mean that they are not rising as quickly.
The good news is that consumers and businesses can become accustomed to the rising costs and adjust their spending accordingly. If you want to cushion the blow of inflation, you will likely need to cut costs and invest in areas that help your business grow. These are some ways that you can reduce your expenses to combat inflation for your small business:
Delete recurring subscriptions that are no longer in use or are no longer necessary
Share tools and equipment to eliminate redundancies in your business spending
Order the tools and supplies you need in bulk
Take note of the productivity of your small business and cut out time-wasting activities
Apply for debt forgiveness wherever possible (if needed)
How To Invest Funds Properly To Combat Inflation
While cutting back on spending is often the initial reaction to inflation, it is not the only way small businesses can stay ahead of the curve. For your small business, it will be equally important to invest in the right places as it will be to cut back on expenses. Many small businesses spend their initial profits reinvesting in their own business.
If you are struggling to grow your small business in this economy, investing in your sales and marketing can be a great way to jumpstart your growth. Focusing on the right marketing platforms and ensuring you are marketing to the right audience is key.
It is important to understand how your clients are finding your business to discover the best ways to invest in marketing and cut out the rest. Here are some of the ways you can discover how your clients are finding your business:
When new clients find your business, don’t be afraid to ask them how they found you. Most satisfied clients will be happy to let you know. You can also prompt your clients to tell you where they found you by asking them on different platforms, such as on online surveys or on your email subscription list.
Put yourself in their shoes
You already interact with your clients regularly, so you might find that putting yourself in their shoes comes quite naturally to you. Think about what questions and concerns your clients typically have when they seek out your services. If you were in that situation, where would you turn to for help? Thinking through this lens will not only help you track their user experience, but it will also help you to serve them better in the future.
Google Analytics is one of the more tech-savvy resources you can utilize to figure out how your clients are finding your business. Google Analytics is a web analytics tool that provides statistics and basic analytical tools for SEO and marketing purposes. You can use it to figure out if your clients are finding your business through search engines like Google or whether they are finding you through social media.
How To Market To The Right Audience To Combat Inflation
Once you know how your clients tend to find your business will allow you to properly identify them. This will help you to allocate funds appropriately to target them. Doing so will ensure that you are investing in marketing in the right areas and avoiding extra costs. For example, if a majority of your clients are finding you through Google search, you will not want to spend your money on influencer marketing. Below are some of the types of digital marketing ads and when it makes sense to utilize them depending on your audience:
Display advertisements are what you probably think of when you first imagine digital ads. Display advertising is a method of attracting your audience to take a specific action. Different types of display ads include responsive ads, retargeting ads, and social ads.
Google’s AdSense program is one of the best ways to invest in display ads effectively. AdSense works by matching ads to a website based on their content and visitors. Your ad can appear on Google search sites and Google search partners when your future clients search for your product or service.
Not only will this method get your small business in front of the right eyes, but it has proven to be a great investment and a solid way to help you combat inflation. In fact, the company has estimated that businesses make $2 for every $1 spent on Google Ads, for an average ROI of 100%.
Paid social media ads
If you are worried about your bottom line during a recession, paid social media ads can be a great investment, and they can help you reach the right audience. That is because it is highly customizable with the way you can target your ads. Some of the best platforms to utilize paid social media ads are Facebook, Instagram, YouTube, TikTok, and LinkedIn. Each of these platforms offers customization options, but Facebook is especially helpful for small businesses that want to be strategic with their ad spending.
There are 1.6 billion people worldwide that are connected to a small business on Facebook, and the platform allows you to cater your ads to the ones most likely to contact your business. For example, Facebook allows you to choose your objective and specify your audience using factors like age, location, and other demographics. It also lets you set your budget and decide where to run your ad. This is great for small businesses because you can edit the amount you want to spend over the course of a campaign. Your reach and frequency will show you the exact budget you need to reach your intended audience.
Search engine optimization (SEO) refers to the marketing tactics that will help your small business rank higher in search engines and appear to the right audience. Nearly half (46%) of all Google searches consist of users seeking local information. That is why SEO and content marketing are such powerful tools for small businesses, and they are great investments even during tough economic times.
SEO and content marketing go hand-in-hand. Content marketing is unique from other forms of advertising in the sense that it meets your future clients where they are instead of interrupting them. Forms of content marketing that can amplify your SEO include blogging, videos, podcasting, email newsletters, and e-books. Content marketing can be an equalizer for small businesses because you can own the market on specific keyword phrases when you are offering quality content for your community. This is why it is a great marketing investment for small businesses that are trying to grow during a recession.
Don’t let inflation stop you from growing your small business. Contact Scorpion to find out how our team can help you make strong marketing investments.