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Inflation & Your Small Business: How to Keep Your Business Afloat through Economic Changes

Inflation & Your Small Business: How to Keep Your Business Afloat through Economic Changes Podcast from Product Powerhouse

Have you been cringing every time you pull up to the gas station? Noticing price increases everywhere? We can thank a nasty bout of inflation for all of this. 

Amazon, Netflix, food, rent, interest rates - it all went up in price and you’re probably feeling the pinch, too, right? What about us business owners - when should we consider raising our prices? The answer - like, yesterday. 

In today’s episode of the Product Powerhouse Podcast we’re setting out to learn the basics of inflation, how it works, and ways to navigate inflation and economic fluctuations in our product-based small businesses. 

What is inflation?

Inflation refers to an increase in prices over time. It occurs when there is too much money chasing too few goods and services. The government uses interest rates to control inflation, which is why we’re seeing an ebb and flow in areas like the housing market, too.

Inflation is when prices rise faster than the rate of production. This means that the value of goods and services decreases over time. It also means that people who save money today will not receive as much purchasing power tomorrow because the dollar has lost its buying power (side note, this is why investing is so important, but that’s for another day!).

Why does inflation even happen, anyway?

I’m no economics professor, so let’s coast through this at a super high level, shall we? Generally, inflation occurs in three different ways. It happens when consumer demand exceeds supply or production capacity. It also happens when production cost increases beget an increase in product prices, and it also happens naturally as wages rise and cost of living increases. 

With inflation comes rises in cost of living (hello, milk and eggs). As the cost of living rises, so does the price of food, housing, transportation, clothing, and other necessities. 

Ways to navigate inflation as a small business owner

While we are currently experiencing unique economic conditions, inflation is nothing new. It’s something every business owner should be prepared to navigate in the normal - and not-so-normal - course of running a business. 

Here are some things you can prepare in your business now as you navigate inflation in this season and in the future:

Managing your small business finances through inflation

You should also make sure that you are charging enough for what you sell so that you can cover your costs while still making a profit. I love the Product First method by Mike Michalowicz. 

In general, he advocates allocating 30% to operating expenses, including materials and anything your business needs to produce/sell/deliver your product; 15% to taxes, 5% to profit, and 50% as owner’s pay. Allocating your finances in this way will prioritize building a safety net of profit as well as ensure you are paid and your expenses (and taxes) are taken care of. 

Then, determine now how you will evaluate and adjust your prices as inflation occurs, and do so annually. 

Slow growth doesn’t mean no growth!

If business is slow, take this time as an opportunity to invest in yourself and your business. Here are some ways you can make the most of a slow season in business:


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