Three Opportunities in an Inflation Driven Market

Three Opportunities in an Inflation Driven Market

When you hear the words “We are experiencing a period of record inflation”, what emotions does that ignite within you? Is it one of anxiety and fear, or one of excitement and opportunity?

To look for the opportunities, it is important that you guard yourself from the plethora of media sources, opinions, and conversations that continue to fuel the fear that many are experiencing.

You know that the cost of running a business is increasing on a weekly basis. So, with the cost of many goods and services rising , together with a tight labour market that is pushing wages up, many business owners don’t have the historical wisdom to navigate through this type of environment. Many are looking for cost-cutting opportunities, yet that avoids the issue of what exactly is different about a high-inflation environment.

The inflation rate we are seeing is not going to last forever. It is higher than many people have experienced, yet it can be viewed as the financial correction the economy needed to have.

Let’s explore 3 Key Opportunities that are available to you if you choose:

1. Adjust/Increase your Pricing Model

The trepidation that customers will balk at modest price increases or will abandon you for somebody less expensive, can keep you locked into low-margin pricing. Many trade/construction businesses are simply under-charging for what they are offering and have been for years. As rising prices are today, the ‘norm’, now is the perfect time to increase yours. You cannot be expected to lag and still survive. Ensure that you are maintaining your mark up on materials and know the true cost to employ your team, and charge appropriately.

We have helped clients evaluate their pricing model and, in some cases, raise them by 30 -  50% without any pushback. The truth behind this, is that the business was well overdue in increasing their prices and this exercise had them realise how much margin they had been missing out on previously.

It is also an excellent time to review low-performing contracts and customers as well as consider weeding them out or renegotiating. Low-paying customers can take up nearly as much time and effort as more profitable customers. Less is more.

2. Become Financially Well Organised

When most businesses in the trade/construction industry are busy, they often think that everything is ‘on track’. This can't be further from reality now. Those businesses who will suffer, are the ones who are not paying attention to the numbers in their business. The PROTRADE United philosophy is, “if you don't know your numbers you don't know your business.”

When businesses are busy, businesses become financially lazy. This allows processes around invoicing and payment collection to become disorderly, which in turn will impact your profitability and cash flow. Now is the opportunity to go to work on these procedures and review how well they are being followed. Ensure you review the following:

  • Debtor Days: The time frame from when a job is completed to when payment lands in your bank account.
  • Budget to Actual: What did you forecast the Gross Profit to be on a job compared to the actual Gross Profit.
  • Break Even: What the minimum amount of income your business needs to cover fixed operating expenses.

Being in touch with these and other numbers, as well as responding to what action needs to be taken, will have you thrive through the current environment.

3. Communication

One of the biggest hurdles that business owners are facing right now is the inability or lack of experience, in having open and transparent pricing conversations with customers and suppliers. Every week we are supporting our clients at PROTRADE United with how to structure and deliver communication about price increases and delays in projects, all whilst maintaining the relationship for the mutual benefit of all parties moving forward.

Customers will understand price increases or modifications to what they typically experience, given the current economic circumstances, and they’ll also appreciate purely being made aware of it . They may not be happy, but they’ll understand.

Be transparent and open with customers and let them know the realities. ‘Early and often’ is the key. The benefit of taking on this philosophy, is that you will be remembered for how you dealt with the current situation, and this will have you be seen as a leader that instils confidence and support with your relationships. A rarity in business today.

If you would like any support with the above, please be in touch.

Written by Jon Mailer


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