Tag Archive for 'inflation'

Execute the pricing power imperatives

Small businesses are finding themselves between a rock and hard place.

The rock is inflation.

For several quarters, rising inflation has pushed up marginal costs and operating expenses. Some increases are dramatic, like hikes in raw materials. Others are more subtle, like increases in copy paper, which aren’t noticeable every month, but add up over the year.

The mother of all price increases is petroleum. The doubling of fuel prices in the past three years has compounded the inflation of cost of goods sold, because every tangible product has a delivery fuel ticket applied to it. And, of course, the fuel bill for company vehicles is burning cash and eating profit.

The hard place is a lack of pricing power.

A business has pricing power if it can raise prices when needed or desired; most often employed to pass along cost increases. Having pricing power is a good thing for any business, but alas, as you will see below, most small businesses don’t have it – or at least as much as they need.

Recently, in our weekly online poll, we asked small business owners this question about inflation and pricing power: “Are you able to raise prices to offset increases in costs and expenses?” Here’s what we learned.

Almost half, 49%, said, “Somewhat - but it’s difficult to match every increase.” Slightly fewer, 46%, reported that they were “not able to pass through cost increases.” And just 5% said, “Inflation is not hurting us.”

When a business experiences inflation without pricing power it puts pressure on cash flow and profitability. Younger businesses are the most vulnerable, because they don’t have the equity to withstand the cash-eating effects of this dangerous dynamic. Older companies that have retained profits can endure longer, but every day spent in the inflation-without-pricing-power vortex is an equity-eroding day closer to failure. So why don’t small businesses have more pricing power and how do they get it?

The reason is, while small businesses have many advantages, most are associated with being versatile and nimble, not with power. And the way to acquire at least some pricing power is to develop a strategy that includes the three pricing power imperatives: Communicate, Educate and Execute. This means reminding and explaining to customers in advance that your price increases are associated with the same inflation they are experiencing.

Small business pricing power requires discipline, planning and courage.

#####

Click on one of the links below to listen or download my recent conversations with Bob Phibbs, author of You Can Compete: Double Sales Without Discounting, on how to develop a pricing strategy for your small business.

Is it time to get serious about raising prices? with Bob Phibbs

Why every small business needs a pricing strategy with Bob Phibbs

Check out more great SBA content HERE!

Take this week’s poll HERE!

Jim Blasingame’s 2008 predictions and what actually happened

For several years I’ve been making predictions about the coming year. I have published my predictions in my own electronic publication, The Small Business Advocate NEWSLETTER, in my newspaper syndication, and talked about them on my radio show.

My predictions typically include small business issues, economic trends, political and public policy, and also international developments. My goal is to help my audience think outside the four walls of the business, give them an opportunity to challenge me, see how good of a prognosticator I am, and of course, have a little fun.

Many people make and publish predictions, but how many return at the end of the year and settle up on how accurate they were? At the end of every year I have reconciled my predictions with what really happened and, until 2008, actually had a 72% accuracy rating.

So it’s reconciling time for my 2008 predictions and it’s going to be ugly. My record this year is 7 for 15, which, if I were playing baseball, would be a .466 batting average – enough to get in the Hall of Fame. But 2008 was not up to my past standards.

Believe it or not, I predicted the beginning of the recession (Q4, ‘07) nine months before economists determined that to be the case. But no - I couldn’t stop there – I had to predict when the recession would end, which I missed, horribly.

I predicted that Gov. Bill Richardson would be on the Democrat’s national ticket, as its V.P candidate. We now know that Richardson will have a very important cabinet position in the new administration, as Secretary of Commerce. So I was close, but we’re not playing horseshoes.

Before Russia invaded the Republic of Georgia I predicted Putin would be a problem in 2008. But I also predicted the economy would absorb the credit crisis by the middle of the year.

If you would like to see my entire list of predictions and my results, I’ll offer them two ways: You can read them here, or you can listen as I discuss them on my small business radio program, The Small Business Advocate Show.

By the way, next week I’ll reveal my predictions for 2009.




Warning: fsockopen() [function.fsockopen]: php_network_getaddresses: getaddrinfo failed: Temporary failure in name resolution in /var/www/wordpress/wp-includes/class-snoopy.php on line 1142

Warning: fsockopen() [function.fsockopen]: unable to connect to twitter.com:80 (Unknown error) in /var/www/wordpress/wp-includes/class-snoopy.php on line 1142