How to Adapt Your Financial Strategy During Times of Inflation

by | Jul 31, 2022 | Accounting, Money Management

Unchecked inflation has sparked fears of a recession across the globe in the wake of the COVID-19 pandemic and the Russian invasion of Ukraine. During times like these, a sound and comprehensive  financial strategy is the only thing that can prevent your company from drowning. 

While price increases might seem inevitable, there are other options. Additionally, there are precision pricing strategies that prevent damages to your customer loyalty if you need to increase prices. These strategies can help you avoid lost profits and hits to your shareholder value. 

In the following blog, we cover how your business can not only survive inflationary periods such as this. Whether you use outsourced financial analysis or controller services, Fully Accountable can help you turn inflationary periods into prosperous times when your business can increase your market share and deepen customer loyalty. Continue reading to learn how you can adapt your financial strategy during times of inflation such as the ones we face today. 

Facing the Current Uncertainty 

You’ve likely heard the word “unprecedented” a lot over the past few years to describe our current business environment. Customers’ confidence in the economy has suffered. With inflation at a 40-year high and the world economy reeling from a pandemic and Russia’s invasion of Ukraine, it’s tough to see the forest through the trees. 

The challenge companies face today is how to keep their customers loyal in an environment that financially strains both consumers and businesses. As this article suggests, the best place to look for answers is internally. Insight into operations, data analysis, decisive action, and strengthened business relationships can help curb at least some of the stress from tough financial times. 

How Does Inflation Affect Growth and Stability?

During times of inflation, companies must keep the difference between gross profit and gross margin in mind. You can increase revenue by raising prices and create the appearance of growth. However, if you ignore your gross margin when you do this, you become less profitable over time and you will wind up hurting shareholder value. 

The most important metric for shareholders is profitable growth, which equates to your ability to grow revenue at the same time as profit. The challenge with inflation comes from passing cost increases while maintaining margins and retaining loyal customers. Because of this, companies must be careful of relying on price increases during times of inflation. 

How Important Is It to Stay Agile During Times of Inflation?

Your business’s financial decisions need to accelerate during times of inflation. You must monitor every change you make closely and adjust quickly. Enacting a single strategy during times of inflation will likely wind up in failure. You need to continuously test and adapt. 

What Options Do Companies Have Besides Raising Prices?

Contrary to what you might think, raising prices during inflation isn’t always the most effective way to combat inflation. The most effective way to combat times of inflation is to look internally at potential inefficiencies in your financial processes.  

Doing so can reduce costs wherever possible so you can retain your customer loyalty during a time when your competitors are likely to lose it. Most companies don’t even measure the cost of inefficient operations. For example, your client might order three times throughout their buying cycle instead of making one large purchase. 

This behavior requires more shipping costs and man hours to conduct follow ups. Processing returns can also cost money that companies rarely account for, particularly during times of financial stress. 

As you can see, even if a customer seems profitable, they can quickly eat into your overall profit from the various costs they incur. Looking inward to discover these inefficiencies helps you implement solutions to lost profits rather than relying on price increases. 

How Can Companies Use Challenging Times to Improve Processes?

The easiest way for companies to respond to these situations is by interpreting data. The only way to be certain of the efficacy of your solution is to test it relentlessly. You should have daily, weekly, monthly, and quarterly analyses running to ensure your solution is actually effective. You should already know which items are struggling to sell, what accounts can handle a price increase, and the areas of your business that continue to bleed your profits. 

Is a Single Approach Best for Price Increases?

Consumers have the power in times of inflation because, similar to your business, they’re trying to cut costs. Because of this, you need to incorporate multiple price strategies to see which ones are most effective. Consumers can choose another vendor and substitute their decisions with generic or cheaper products.

Your CFO should be able to combine market support with customer profiling. Your financial strategy should address who can uphold a price increase and who would be likely to seek elsewhere. 

Consider the Long-Term Implications of Your Strategy

You need to be careful if you plan to implement a price increase. Careful price increases account for the long-term implications of a price increase rather than focusing on short-term solutions. Remember, customers should expect some price increases, but those should be within reason. 

When the situation turns for the better, your company should be able to quickly establish itself as the one who gains your customers’ trust. The only way to do this is with highly-specific price increases. 

Even though price increases might be unavoidable, there are still ways for you to incorporate long-term tactics aimed at retention. In distribution, you can partner with customers and identify products in your supply chain that you can substitute to save money. 

Communicating about the rationale behind your price increase is also critical. However, that should occur in the context of your overall service and strategy, rather than price alone. 

Don’t Panic 

Many companies push the panic button during times of economic turmoil. That’s normal. However, if history has shown us anything, it’s that tough economic times give way to prosperity. A deflationary period is virtually inevitable and your inflation strategy should be based around this deflationary period. Limited lost profits and reduced costs in problem areas can alleviate your company’s inflation woes. 

The companies that last the longest understand the big picture rather than getting bogged down by temporary challenges. During difficult times such as these, the best companies take it as an opportunity to deepen customers’ connection to the company. They aren’t merely concerned with profit margin. They take their focus and use it to win additional market share because most companies aren’t focused on customer loyalty during tough financial times. 

When the dust settles, these companies are prepared to reap the rewards of a loyal customer base. 

Fully Accountable Can Help

At Fully Accountable, our outsourced CFO services ensure you have a strategic partner who can capture the market share you need to retain your profits and shareholder value. We understand the financial professional of the future isn’t merely concerned with compliance and number-crunching. Our strategic CFO services are here to help during times of inflation so you can retain customer loyalty without implementing price increases that drive away business.
Contact us today to learn more about our services and how they can help you through trying times.


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