Gauging customers, managing costs key to small business amid inflation, Missouri NFIB exec says

After inflation jumped by 6.2% in October, the highest increase in 31 years, small business owners are seeking ways to manage their businesses.

Brad Jones | Courtesy of Jones

“Inflation is one of those bugaboos that’s hard to plan for,” said Brad Jones, Missouri director of the National Federation of Independent Business. The NFIB is an industry association that advocates for small business owners in federal and state governments.

While rising inflation can hurt the bottom line of some small businesses, owners can consider what prices their market can handle and their labor costs, Jones said. He spoke with Missouri Business Alert during a live event on Dec. 3.

“We’re looking at a perfect storm of things that aren’t good from an economic standpoint (and) from a small business standpoint,” Jones said.

How we got here

The current period of inflation can be attributed to a storm of issues related to the COVID-19 pandemic.

When the pandemic first hit, many consumers stopped spending money like they normally would, Jones said. As the economy picked back up, suppliers struggled to cope with increased demand, leading to inflation.

“That is the most simplistic explanation of inflation,” Jones said. “Basically, you have less of something and you have a demand for it.”

Raising prices with caution

Many small businesses forced to raise prices due to inflation should consider what their market will handle, Jones said. While some big-box stores like Walmart can handle inflationary pressures due to their large inventory, smaller stores should carefully consider what their customers will pay for before increasing prices.

“Pricing is not necessarily a science,” Jones said. “It’s kind of an art, because when you’re a small business, you do not have the luxury of having a whole vast number of products that you can take your most popular, keep the prices lower with that, and raise some of your other things that you might be selling.”

Small businesses must be much more precise when considering their prices, Jones said, to ensure the change will not push customers to their competition.

“You’ve got to look at your product line and say, you know, ‘These are the things that I have,’” Jones said. “‘These are the most popular. These are what’s going out the door every day. These are the ones that if I price these incorrectly, they’re going to go to my competitor, and I’m going to be at a disadvantage.”

Managing employee costs

Looking at labor and operational costs can be another way small business owners can manage the impacts of inflation, Jones said. While raising wages can be an effective way to attract workers amid a labor shortage, owners should consider the highest raise that their businesses can handle.

“Even big companies, small companies, everybody is looking for people to work,” he said. “And so we get to this question, then, of pricing. Am I able to give my employees a 2(%) or 3% raise this year?”

Looking ahead

While the Federal Reserve Bank has suggested it could raise interest rates next spring to help manage rising prices, Jones said he hopes inflation will cool down by the middle of 2022 as supply chain issues ease.

“I would like to think that the dam is going to break and those products and things are going to start to get back on the shelves,” Jones said, “which will cause the prices to start to go down.”

However, he said the fourth quarter of this year will be crucial in determining the future of small businesses in the coming year.

“The fourth quarter is extremely important for small business people,” Jones said. “When they budget, they plan on having a really strong holiday season. And by all accounts, the one thing that (Americans have) started doing is buying.”

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