Labor and Material Cost Increases: Planning for your Small Business in 2022

Carrying over from 2020 and 2021, supply chain issues continue to plague small businesses in 2022. While things look a little brighter for 2023, brand owners still need to adapt and adjust to the uncertainty of labor and production right now.

The Big Issues

When it comes to a shortage of production and shipping delays, things can be broken down into three main categories:

  • Supply chain disruptions
  • Scarcity of raw goods themselves
  • Commodity costs increasing

Those three together creates a triple threat wherein the materials become more expensive to buy and so eat into your margins, and many business owners are left with a tough choice: increase prices to protect your margins and risk alienating customers or keep prices the same to keep customers happy and suddenly find yourself making little to no money.

Profit Protection, Pricing & Margins

yourAny way you look at it, a sudden overarching price increase will turn away customers. Instead of implementing sweeping, one-size-fits-all changes, look at how your products were originally priced and reevaluate your pricing strategies. Look at your margins for selling e-comm and wholesale. If you’re not in wholesale, consider transitioning into the space. Also factor retail partnerships into your strategy to expand your footprint and sales. If you are pre-launch, this is a great time to add in those strategies to your business plan.

Adjustting Pricing In Real-Time

Of course, for brands already established, you’ll need to readjust your strategies piece by piece while maintaining operations. You can’t simply up your prices all at once, since you’ll have existing customers who know your current ranges. Consider following these basic steps to implement the changes:

  • Always communicate your price shifts to your customers
  • Give them a heads up on price increases – communicating answers and transparency promotes trust
  • Stage out your pricing changes to br gradual and done in waves, not all at once

Things might get a little messy and your margins may fluctuate briefly, but it’s important to keep as many existing customers onboard through the price updates as possible.

At Scaling Retail, we help brands navigate tough changes to grow successfully in an ever-evolving retail world. Send us an email to [email protected] to start the conversation. 

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