The Hidden Cost of Rising Expenses: Protect Your Business with Smart Pricing and Expense Management
Hi everyone, a big thank you to everyone who has been reading our newsletter! I hope that the content is providing value and support to you as you work to build the business of your dreams!
In this issue, I will focus on:
• Rising supplier and operational costs can eat away at margins, but there are two key ways to combat this: manage expenses and adjust prices.
• Regularly reviewing expenses, cutting waste, and finding innovative ways to provide value can protect cash flow and profitability.
• When paired with strategic pricing adjustments, these steps help build a resilient, profitable business.
Inflation has been a major challenge for small businesses over the last couple of years, fueled by ongoing political and economic uncertainty. Rising supplier costs, higher wages, and fluctuating interest rates are squeezing margins tighter than ever. Unfortunately, it looks like we’re not done with inflation just yet, which means now is the time to take proactive steps to protect your business.
By focusing on managing expenses and making necessary pricing adjustments, you can shield your margins and build resilience. Let’s dive into how you can take control, even in challenging economic times.
Step 1: Get Serious About Expense Management
Managing expenses is about being proactive and innovative with your investments. Every dollar spent should work toward growing your business or improving customer value. Here’s how to ensure your expenses are working for you—not against you.
1. Understand Every Expense
Take a deep dive into your expenses and categorize them. Which costs are essential, and which aren’t adding value? This clarity will help you identify areas for cuts or renegotiation.
Pro Tip: Review recurring costs, such as software subscriptions or supplier contracts. Duplicate or unused services can add up quickly.
2. Cut Waste and Renegotiate
Regularly evaluate costs and negotiate with vendors to lower rates. If a supplier isn’t willing to work with you, consider alternatives. Every dollar saved is a dollar added to your cash flow.
3. Innovate to Create Value
Look for ways to deliver more value at the same or lower cost. For example, streamline processes, adopt cost-saving technologies, or bundle products or services in ways that increase customer satisfaction without increasing your costs.
4. Make It a Habit
Expense management isn’t a one-time activity. Set a regular schedule—monthly or quarterly—to review your spending and look for opportunities to improve efficiency.
Step 2: Adjust Pricing to Protect Margins
Once you’ve managed your expenses, the next step is to ensure your pricing reflects the value you deliver and keeps your margins healthy. Here’s how to approach pricing changes confidently:
1. Link Pricing to Value
Rising costs mean you’re likely providing the same or even more value at a higher expense. Your pricing should reflect this. Customers are willing to pay for quality, reliability, and expertise.
2. Communicate with Confidence
Transparency is key when introducing price changes. Share with your customers why the adjustment is happening. Emphasize your commitment to maintaining quality and the value you provide. Most customers understand that rising costs affect everyone.
Example Script
“To continue providing the quality you expect, we’re adjusting our prices to account for rising costs in materials and operations. This change ensures we can maintain the high standards you’ve come to rely on.”
3. Start Small and Test
If you’re nervous about raising prices across the board, start with a small increase on select products or services. Monitor customer reactions and adjust as needed. Incremental changes are often easier for customers to accept.
Profit First Insight: Combine Innovation with Simplicity
The Profit First system emphasizes visibility and control over your finances. Managing expenses is just as important as increasing revenue. By regularly trimming unnecessary costs and finding ways to innovate, you can not only maintain profitability but also create a lean, efficient business that thrives.
Strategic pricing adjustments combined with disciplined expense management ensures your profit margins remain strong—no matter how costs fluctuate.
What’s Next?
The combination of expense management and smart pricing can transform your business. By cutting waste, negotiating better deals, and finding innovative ways to deliver value, you’ll have more room to adapt to rising costs. And by confidently adjusting your prices, you’ll protect your margins and maintain a healthy cash flow.
Remember, success isn’t just about making more—it’s about keeping more. Let’s focus on building businesses that are both profitable and resilient.
Adam Litster
Certified Profit First Professional and Pumpkin Plan Strategist
(816) 500-5779
adam@betterbizinfo.com
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