A Nairametrics report showed that Nigeria’s inflation rate increased by more than 207% between 2009 and 2019. Recent data shows that Nigeria’s annual inflation rate climbed to 15.92% in March of 2022, from 15.70% in the prior month, the fastest rise in consumer prices since October 2021.
In addition to causing price increases for consumers, high inflation can also affect business owners who are trying to make a profit by increasing their prices too much or too fast. Here are four ways small businesses can navigate inflation as they try to maintain profit margins while adapting their pricing strategies to keep up with changes in costs:
- Understand the effects of inflation and how it affects your business
Inflation is a constant reality for businesses and individuals alike. It's a silent killer, one that can eat away at the bottom line if not managed correctly. Understanding how inflation affects you and your business is key to managing it correctly. Keep abreast of news updates, and the current prices of your major resources. This is so you can make data-backed projections of future costs and make informed decisions in the present.
For example, if it’s evident that the major ingredients in your soap-making business are increasing by 10% every month, you can buy such materials in bulk and keep them in storage.
2. Understand your costs - keep an eye on them
A major step to managing inflation is understanding where it comes from in the first place. While most people think of cost inflation as a product of rising prices, there are other factors that contribute to rising costs too, such as wages and interest rates. Calculating these can help you determine whether or not you're experiencing price increases within your own company. If so, then it's time to look at adjusting your pricing strategies or finding ways to reduce the cost of doing business overall.
For example, if you get your clothing materials shipped to you from London, it might be time to look for a local outlet for the clothing materials. Considering the climbing exchange rate, it would benefit your business to cut down costs in that regard.
3. Monitor your expenses and make smart investments
Inflation can hit small businesses hard, but so can other factors like poor management or bad finances. A small business owner who keeps track of his expenses each month can easily calculate how much money he/she spends and make investments accordingly.
If you're not sure whether something is worth buying, ask yourself whether it will last longer than two years and what its replacement cost would be if it broke down or was stolen. Inflation is a real risk for small businesses, and it can make your business less profitable. That's why it's important to invest in items that will give you long-term benefits and not just short-term gains. For example, you could invest in a computer program that will help you manage your business more efficiently and with less effort. Or you could buy a grade-A tailoring machine that makes better stitches, and lasts longer than the fairly used one that sells for cheaper.
4. Adjust your prices
In many cases, companies fail to adjust their prices when inflation is high because it seems like there's no benefit in doing so or that it could backfire. However, adjusting prices is one of the best ways to protect yourself from rising prices over time and maintain profitability. For example, if a product costs N1 and its price goes up by 5% during the year, then a company can raise its price by 5% as well in order to maintain its profit margin (assuming all other factors remain constant). It is important to adjust your price moderately,
5. Sell with OurPass
OurPass provides you with lower transaction fees while also offering you a wide variety of fast, secure, and easy payment options such as bank transfers, QR payments, payment links and much more. OurPass also prioritises its merchants by providing them with resources, discounts and promos to help reduce costs, and empower small businesses in the current climate.
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