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What increasing prices mean for small businesses

DATE: 21/07/22


Increasing prices and rising inflation rates are familiar news these days, impacting consumers and businesses alike as the economy struggles to rally against quickly changing conditions. Thanks to a perfect storm of pandemic, global lockdowns, Brexit, the war in Ukraine and the consequent impact on supply chains and energy costs, costs across the board are rising at a startling rate. As we all look at ways to survive the squeeze, how will these events impact businesses and in particular small businesses in the months ahead?

Small business specific

The specificity of a small business is that it typically does not hold a huge amount of negotiation power. Unlike its larger counterparts, economies of scale are not as easily actioned for small businesses. As a result the raft of cost and price increases hits a small business in a relatively more significant way. From overheads to wage increases, transportation costs to rapidly changing supply chains, small businesses are finding they are being squeezed from all directions and have potentially less options available to them.

What does it all mean in practice?

Increased Costs

For any business, a rise in inflation and the combination of global changes we’re experiencing mean that supplies and services normally accessed are all going up in price. The cost of everything your business normally does has increased. Whether it’s the energy costs to run your services, the transportation costs to bring your products to your customers, the cost of paying your team or the weight of administrative burden in importing the raw materials you normally rely on. Everything that makes up the core offering of your business now costs you more.

Increased Prices

The domino effect here is unavoidable. As every business experiences an increase in their core costs, they ultimately pass those costs on to their own customers. From here we see increased prices throughout the whole economy. As prices increase across the board, customers reduce the amount they buy or access ultimately resulting in a slowdown of profit.

Limiting Overheads

Costs and prices increasing mean that businesses of all sizes have to make hard decisions. How do they manage their business, how can they reduce their outgoings and maintain a profit margin? The first way to do this is normally to reduce overheads. This might mean letting go of office space or employees, holding less inventory or reducing the quality of their offering.


Ultimately businesses end up with a smaller margin of profit. Customers are shopping less due to increased prices, businesses have less cash flow due to the increase of their own costs and as the economy shrinks, it becomes more and more difficult for any business to remain profitable.


What can small businesses do?

While an economically challenging time for all businesses, there are some ways to navigate this period of inflation:


Get down to financial brass tacks. Dig deep into your overheads, your costs, your profit and your projections. Consider where you can cut costs, improve your supply chain, find new raw materials or transportation outgoings. Any difference can make all the difference so spending time understanding every penny and where it could be better spent will help. Any savings you make can help as cash flow, or can be redirected into marketing outgoings to try and boost sales.

Stay small or think big

Most businesses will need to decide whether to stay lean and small or whether to focus on growth. If small is the answer, focus on keeping your costs low and cutting back on all non essentials. Staying as lean as possible and focusing on your customer retention and gradual growth will help you to ride out the storm.

If growth is more appealing, you’re working towards staying ahead of inflation and your competitors by focusing on marketing, revisiting your pricing strategy and redoubling the investment you make in your business. You might look at investment in technology that helps you to optimise your productivity or customer journey. Or perhaps you could consider focusing on staff training and targeting lead generation in a more specific way.

Consider Prices

Most small businesses find price increases hard to pass on to their customers. Small businesses traditionally engage closely with their customers. They understand the problems they are looking to solve and respect price sensitivity so when it comes to price hikes, it’s a very hard decision to make. There will however be a tipping point when a price raise is inevitable. There is only so much you can shave off your profit margin before the business becomes untenable. With this in mind be careful to make your price increases at the right time.

Get Creative

Creatively is always central to survival. Take time to look at what you could be doing differently that could help you move through this economic challenge. Are there back up supply chains you could put in place to offer you security should any further lockdowns take place? Are there alternative products or solutions you could consider offering your customers to bring them added value? To broaden your reach and make your business more essential? What about collaborating with other small peer businesses to share overheads like office space, transportation costs and even wage costs? The most extreme periods of economic and social challenge often fuel the flame of creativity in incredible ways so looking at this as an opportunity could be crucial to coming out the other side in good shape.


Whatever your business idea, whether it’s just something you’ve been mulling over or whether you’ve taken some steps on the entrepreneurial path already, we’d love to help. Read some of our Go For It Success Stories and  get in touch. Our business experts will be delighted to hear from you and to talk you through everything you might need to know to move forward with your business concept.