How can your business survive the cost of living crisis?
Has your business been hit by the cost of living crisis? Find out what is causing it and three things you can do to survive these tough financial times.
Right now, the UK is experiencing a cost of living crisis. Since the end of 2021, we’ve seen the prices for many essential goods rise faster than household incomes, which has resulted in a fall in real income.
And while this affects everyone, low income households are disproportionately impacted. Many people who were already struggling are now finding it impossible to cover their bills month-to-month.
Research by the Joseph Rowntree Foundation discovered that more than 3 million low-income households in the UK could not afford to heat their homes, and 710,000 households had trouble paying for food, heating and warm clothing.
What is causing the cost of living crisis?
The cost of living crisis is being caused by higher inflation and low wage growth, which has left many households worse off. Other contributory factors include the war in Ukraine and the pandemic.
During Covid, inflation fell as households reduced spending. Then, in 2021, when restrictions were lifted consumers were able to spend the savings they has accumulated during lockdown – leading to increased demand. But businesses weren’t ready for this demand as they had let staff go and were battling with supply chain issues. This supply shortage (and escalating costs of containers) led to an increase in prices.
Then, just as the supply chain issues were being resolved, Russia invaded Ukraine. This caused a surge in prices for oil, gas, energy and food.
To make a bad situation worse, over the past few decades market competition has decreased, with a smaller number of large companies taking up a more significant share of market. This is good news for multinationals – in 2022 the Competition and Markets Authority found that markups, a measure of profitability, have increased by 75% in the last 20 years – but less good for consumers as decreased competition leads to higher prices.
But while the Ukraine war, reduced market competition and record 9% inflation may have fuelled the cost of living crisis, they aren’t the only cause of it. Since the great recession of 2009, the UK has suffered from low productivity growth and poor economic growth. A decrease in supply of rental properties and skyrocketing rent prices have not helped, either.
The final contributory factor to rising prices in the UK is Brexit. The depreciation of the Pound’s value has increased import prices, while the cost of doing business with Europe has increased.
How is the cost of living crisis impacting small businesses?
Whatever the cost of the cost of living crisis, small businesses owners are stuck between a rock and a hard place right now. As consumers, their own cost of living has risen dramatically, and as business owners they face soaring costs.
They are also concerned that trade could dry up if customers stop buying, which often happens during periods of high inflation as consumers have less money to spend.
This fear is well-founded. According to data from the Office of National Statistics, retail sales are down as around 70% of people have cut down on non-essential spending:
Three ways small businesses survive the cost of living crisis
So what can small business owners do to ride out the cost of living crisis? Especially when so many factors, including the cost and availability of supplies and labour, and the price of fuel, are outside their control?
Here are three suggestions to help you survive the cost of living crisis.
1) Increase your prices
The most obvious solution is to increase your prices to compensate for a rise in costs and reduced trade. However, this has a clear stumbling block: if people are spending less because their disposable income has reduced, how will they be able to pay more?
This is where you need to be strategic about your pricing. Because no, you may not be able to apply a blanket rise in prices – or at least increase your prices across the board by enough. But you can pick and choose where you charge more.
One suggestion is to create a tiered pricing of products or services that offer choice to customers. The triplicate of choice means you can offer a premium service or package of products for customers who want or can afford to pay for it, while providing a more affordable level for people who cannot.
If you are a cafe or restaurant, for example, you may decide to introduce a cheaper range of dishes on your menu to appeal to more cash-strapped customers, while rising the prices of other dishes. If you have a bricks and mortar or e-commerce store, you could create a budget range of products, while increasing the costs of more luxury items.
Most consumers understand that businesses need to raise their prices right now, and if you have a loyal customer base and communicate the reasons for your increase effectively, you should find that people are accepting and supportive of your new pricing.
You can learn more about the psychology of pricing, how to get your pricing right and how to successfully raise your prices in our Pricing Learning Track.
You can also read an example here of how a yoga teacher restructured her packages and increased her pricing – and acquired MORE customers. She also successfully increased her prices again once the cost of living hit.
And you can read here how the owner of a beach hut maintenance business restructured her membership, introducing a triplicate of choice and increasing her prices – and doubled her income while reducing the amount of time she worked.
2) Grow your sales
It’s understandable that many businesses choose to cut down on non-essential spending, such as advertising, in tough financial times. After all, if people are spending less, then what is the point of trying to get their attention? Plus you need to conserve your budget, right?
Actually, all the data shows that this is the worst possible strategy! Why? Because if the market is smaller, you need a larger share of it in order to make enough money. Plus, if your competitors are spending less, it’s an ideal opportunity to grow your brand and sales.
We cover this topic more extensively, with case studies, here. But the basic argument behind increasing your sales during a recession, or tough financial market is:
- With fewer ads in market your message is more likely to get noticed
- Consumers are more likely to remember you when everyone else starts advertising again
Indeed, the data shows that consumers feel reassured by companies who continue to market their offering in tough times, and keep these businesses front of mind when buying – both during a recession and afterwards.
So how can you grow your market share right now? One way is to invest in advertising. But if you don’t have the budget to pay for ads, you can still plan a budget market strategy and create a sales calendar.
This is something we recommend and teach you to do in our Sales Learning Track. And remember: if you aren’t actively DOING sales, you won’t get them.
3) Reduce your costs
As well as increasing your prices and growing your sales, another way to earn more from your business in tough financial times is to reduce your costs.
There are two types of cost that businesses will have:
- Your operating costs: These are overheads you will have even if you sell nothing. For example, rent, WiFi, salaries, etc.
- Your supplier costs: These are outgoings that you only have if you sell something. For example, the cost of buying in food or products, shipping, etc.
We recommend looking at both types of overhead and looking for opportunities to cut back, while not harming your business’ ability to operate, or reducing your standards.
When examining your costs, ask yourself these questions about each one:
- Is it necessary, or can I eliminate it?
- Can I negotiate a better rate, or change to a cheaper option/supplier?
- Can I reduce my consumption of this to lower my costs?
Most businesses find they can save money with some savvy research or bargaining. You may even discover that you can eliminate some costs without impacting your ability to supply or serve customers. For example, do you use all the software you pay for? Or can you find a cheaper or free alternative?
The worst thing you can do right now is nothing
It’s tough for small businesses right now, and it doesn’t look like the situation will ease any time soon. But, as hard and unfair as it may be to have to re-assess your business and make changes, it is imperative.
History shows that business owners who adapt and innovate don’t just ride out recessions and tough financial periods, like the current cost of living crisis, but they can actually GROW during them. With some careful planning and thought-out changes, you can increase your market share, especially if your competitors don’t do the same.
This period will separate the fortunes of businesses between those who had the commercial instinct to adapt and ride out the crisis, and those who struggled, or failed to respond to the changing market.
And yes, some businesses will be hit harder than others, and some sectors will have a rougher time. It may feel and be completely unfair. But it is important to fight for the business you have worked so hard to build, and find ways to come through this financial crisis stronger. From experience, there is often a solution through tricky times if you can find it.
How can we help you through the cost of living crisis?
Our mission is to make business easier for you – and specifically help you earn the money you deserve. On this site we have over 6,000 articles, many containing advice to help you start, run and grow a business.
If there is something specific you are struggling with, just use our search function to find an article on that subject:
We’ve also created learning tracks – mini-courses that take you on a journey of learning and increase your skills and resources – to help you ride out this tough time. Each learning track can be rented on a monthly basis to help manage the cost. You can pause or stop your rental whenever you need.
You can also buy each learning track outright, or buy all three in our Money Bundle, which gives you the best value way of acquiring them for life.
The three learning tracks are:
- The Pricing Learning Track: Get help to raise your prices so you make more money while attracting more customers, and build healthy financial habits. See more
- The Mindset Learning Track. Get help to rewire your brain to change how you think, feel and ultimately act – and build your money confidence. See more
- The Sales Learning Track: Get help to sell more naturally, craft more powerful sales copy and create a sales strategy that will bring in more money, more often. See more
Collectively, these learning tracks are your cost of living business survival toolkit. They’ll help you increase your prices, reduce your spending, grow your sales and boost your mindset, so you are able to confidently navigate these tough times, while growing your sales and income.
You can buy all three learning tracks, and save money plus get lifetime access, in our Money Bundle.
Photo by CHUTTERSNAP
