Inflation and rising costs can seriously erode your businesses profits…
Now the very real threat of a 25% tariff on all goods exported to the USA will squeeze profits for businesses selling across the border.
For family-owned businesses, where relationships and long-term stability matter, the challenge is even greater. A misstep in pricing can erode trust, while failing to adjust can eat away at profits.
The good news?
Smart pricing strategies can help you stay ahead. Here is how you can outmaneuver inflation and tariffs while keeping your business healthy and competitive.
Understand Your Cost Structure in Detail
Before making any pricing decisions, get a granular understanding of your costs. This means knowing not just your direct costs (materials, labor) but also overhead (rent, utilities, software subscriptions).
- Action step: Review your cost structure monthly to spot trends and pinpoint where inflation is hitting hardest. This is one step we do monthly with our clients in our Controller’s meeting.
Use Strategic Price Increases
Instead of across-the-board price hikes, implement targeted increases that align with value perception.
- Increase prices on high-demand, low-elasticity products/services—those your customers cannot easily replace.
- Offer tiered pricing—keep an entry-level option affordable while adjusting premium offerings to reflect value.
- Gradual vs. one-time hikes—small, incremental increases over time can be more palatable than a single large jump.
Improve Pricing Psychology
Consumers do not always respond rationally to price changes. Leverage pricing psychology to maintain sales.
- Charm pricing: A price of $97 often feels significantly lower than $100.
- Anchoring: Show higher-priced options first to make standard offerings seem like a great deal.
- Bundle services/products: Customers are less sensitive to price changes when items are bundled together.
Lock in Long-Term Contracts with Suppliers
Negotiate multi-year agreements with key suppliers to lock in better rates and protect against sudden cost spikes. Consider bulk purchasing or forming partnerships with other businesses for greater buying power.
A well-known cliché – lean and mean – applies now to overhead. Look at all your fixed costs and ask – do I need this now? If yes, can I get it for less with another supplier, and not lose the quality I need?
- Action step: Review all supplier contracts and identify opportunities for renegotiation.
Introduce Value-Added Services Instead of Discounting
Discounting can erode margins and set customer expectations for lower prices. Instead, add value in ways that do not significantly increase costs.
- Offer free training, extended warranties, or enhanced customer support.
- Provide loyalty rewards or exclusive first access to new products.
Improve Operational Efficiency
Cutting waste and optimizing internal processes can free up resources to absorb cost increases without passing them all to customers.
- Automate repetitive tasks with technology (e.g., like we do with Plooto for payments, ApprovalMax for approvals).
- Streamline supply chain and inventory management.
- Reduce overhead costs by outsourcing non-core functions.
Implement Dynamic Pricing
Big retailers and airlines use dynamic pricing to adjust rates based on demand and market conditions. Family-owned businesses can take a similar approach by adjusting prices for peak seasons or high-demand products.
- Example: A flower grower might increase prices before Valentine’s Day but offer discounts post-holiday.
- Action step: Monitor demand patterns and consider flexible pricing models.
Educate Customers on Pricing Changes
Transparency builds trust. If you need to raise prices, explain why. Customers are more understanding when they know the reason behind increases—especially if you highlight the continued value you provide.
- Use newsletters, social media, or personal conversations to communicate pricing changes effectively.
- Reinforce the benefits of your product/service—superior quality, reliability, or unique expertise.
In Closing
Inflation, tariffs, and rising costs are a challenge, but they do not have to derail your business. By strategically adjusting prices, optimizing efficiency, and focusing on value, you can protect your margins and maintain customer loyalty.
Thank you for reading…