Effective Strategies for Safeguarding Business Profit Margins Against Inflationary Pressures
How to mitigate the impact of inflationary pressures to protect the profit margins of your business.
Clients often ask us what actions should we take to mitigate the impact of inflationary pressures and protect profit margins within our business.
In most cases, the initial focus is placed on identifying ways to better manage both Revenues and Expenses which we explain a little more below, and we’ve also included some thoughts on three other strategies that could be of benefit to businesses.
On revenues, getting the pricing correct is essential, particularly when costs are rising dramatically. To do this, businesses need to design an effective, yet agile, pricing strategy based on their customers’ willingness to pay, counterbalanced with how inflation is impacting on their costs. Ultimately, however, companies need to consider their larger market and what competitors are doing, not just inflation. In cases, where price increases are the inevitable required outcome, businesses should focus on deploying creative pricing strategies to lessen the perceived impact of a simple blanket increase. For Example, consider product bundling and unbundling, removing or reducing discount and rebate arrangements, or adding or removing features from products/services.
On expenses, managing costs in the current environment is vital, but in order to do this you must, at the very least, have visibility over where money is being spent and who it is being spent by. Once established, mitigating strategies at a basic level could involve changing/renegotiating with suppliers, hedging/forward contracting strategies to reduce volatility, together with conducting value for money audits to remove costs that aren’t adding sufficient value. Equally as important, as learned from our Brexit experiences, is achieving greater diversity on supply chains, even if perhaps it increases costs in the short term.
Reduce consumption
It is a very good idea to conduct an energy audit of your business to find ways to reduce your consumption, given that energy costs have been one of the biggest contributors to current inflation levels. Many companies have been able to achieve considerable savings here alone and reduce their carbon footprint.
It is also worth considering flexible working arrangements and Work From Home policies to generate more efficient use of your business premises. Lastly, it can be very worthwhile to research whether outsourcing business functions or processes could provide an acceptable or even better outcome at a lower cost.
Eliminate work
Adopting a blank canvas, or sometimes referred to as a Zero Based, approach allows businesses to interrogate what activities are performed and how those activities are performed, with the specific objectives of identifying and eliminating unproductive work processes and creating opportunities to automate.
Automate
Investing in technology to permanently reduce the cost of doing business. Some examples would be Robotic Process Automation, workflow, and intelligent document processing, which can free up inefficient time spent by employees, with the result of making each person much more effective at creating value. While spending can seem counterintuitive during times of high inflation, implementing digital initiatives can lead to the deflation of business costs resulting in increased profitability over time!