How Small Businesses are Dealing with the Spike in Cost of Supplies
As the vaccination rate continues to increase and businesses reopen, the crisis brought on by the pandemic is shifting for small businesses across the country.
According to the latest survey from Alignable, more small business owners cited rising costs of supplies as their No. 1 concern. The online network for U.S. small businesses reported that this had surpassed other fears, including worries about customers being too apprehensive to return to their stores and running out of cash reserves.
Inflation Rate Rising a Cause of Concern
With the worrying trend of rapid price increases for supplies, small business owners are moving away from concerns about the pandemic – becoming more alarmed about the strong likelihood of inflation instead.
In its latest report, the Bureau of Labor Statistics shared that the inflation rate rose 5 percent over the last year – the largest 12-month surge since August 2008. The higher inflation numbers may be attributed to more people returning to pre-pandemic purchasing behavior – eating out at restaurants, traveling, and increasing their entertainment spending.
Nonetheless, the higher inflation rate is adding to the growing list of concerns for small business owners.
According to the Alignable Inflation Poll, more than two-thirds of small business owners are troubled by the increase in inflation. Additionally, 38 percent of small business owners were “highly concerned” about inflation.
“The majority of small business owners say they’re having trouble accessing supplies they need, and the supplies they can access are more expensive than ever,” according to the poll.
“The majority of small business owners say they’re having trouble accessing supplies they need, and the supplies they can access are more expensive than ever.” – Alignable Inflation Poll
Through the poll, small businesses shared that the inflation impacts are already being seen across varied industries. This includes Internet-based companies unable to sustain free shipping benefits for customers due to rising shipping costs to law offices whose clients can’t pay their legal fees because of inflation repercussions. Yet, more than half of small business owners are undecided about passing down the added costs to their customers.
The Alignable poll also shared the frustrations small business owners are facing. Some of the data included:
- 80 percent report a rise in the cost of supplies, 22 percent of which say the costs have jumped more than 25 percent.
- 59 percent say they’re having trouble obtaining supplies.
- Just 48 percent indicate that they’re passing on the added costs onto customers.
Costs Should Be Passed On to Consumers
Another record high, the National Federation of Independent Business, reported that 48 percent of small businesses dealt with unfilled job openings in May.
“Small business owners are struggling at record levels trying to get workers back in open positions,” said NFIB Chief Economist Bill Dunkelberg. “Owners are offering higher wages to try to remedy the labor shortage problem. Ultimately, higher labor costs are being passed on to customers in higher selling prices.”
“Ultimately, higher labor costs are being passed on to customers in higher selling prices.” - NFIB Chief Economist Bill Dunkelberg
Still, some remain reluctant to raise their pricing as many small businesses continue to grapple with the challenge of reaching their pre-pandemic revenue levels.
“Many don’t want to raise prices too high to scare off the B2C or B2B customers they can attract,” according to the Alignable report. “But they also need to make up for rising expenses and the many months when they earned much less than they anticipated prior to COVID striking.”
How Small Business Can Bounce Back By Navigating Pricing
While recovery may be daunting, there is some good news. According to economists, the rising inflation rate is temporary with the momentary disparity between supply and demand. Prices are likely to return to normal once businesses recover and catch up in supplies or inventory after experiencing the contraction in demand during the start of the pandemic.
In the meantime, with the volatility in demand, small businesses are encouraged to examine their pricing strategies and make appropriate changes if needed.
McKinsey & Company, a management consulting firm, recommended in a memo that businesses make adjustments to their pricing strategies. Some of the items to consider when it comes to getting it right during a pandemic include:
1. Check to see all pricing set is fair and legal. Keep the pandemic in mind and refrain from drastically raising prices on essential goods and services or disregarding existing contracts. Remember that any major price hike should accurately reflect your increased costs.
2. Reinforce your value-focused message. Increasing your price may be a particularly sensitive matter, depending on your industry and customer segment. The key is to show your understanding and explain effectively how the benefits to the customer far outweigh the increase in pricing.
3. Provide flexible pricing. Consider creating highly discounted, temporary pricing to help alleviate your customer’s current pain points during their recovery period. These may include offering one-time promotions, crediting future purchases and providing flexible payment terms.
While there is some optimism about the continued growth, small businesses and consumers remain cautious as uncertainty around the pandemic and the economy remains. However, small businesses have an increased chance of finding success amid the unknown by incorporating some of these best practices into their pricing strategy.