How B2B businesses can deal with inflation

Posted in B2B sales & distribution.

When everyone starts increasing prices due to inflation, it impacts singular businesses who also have to deal with price changes. Supplies aren’t as cheap as they used to be and profit margins shrink. Businesses are forced to act if they don’t want to incur losses. However, whereas many business leaders see price increases due to inflation as fair, many customers do not. The further down the supply chain one goes, the bigger those price increases become. B2B businesses are in a position where their customers are tackling similar inflation issues that they are.

Inflation is a reminder for businesses to rethink their expenses. It is prime time for them to consider which businesses they purchase from and make some changes. B2B businesses need to balance the impact of inflation on both their businesses and their customers’ businesses in order to maintain satisfaction on both sides.

So, how can B2B businesses maintain this balance of satisfaction? How can they secure their cash flow while mitigating losses, both in terms of finances and business relations?

They manage their pricing

Of course, when the value of money changes, the value of goods and services should too. That means that businesses may see their expenses increase. The simplest choice is thus to increase the prices of their own goods and services. It’s how these price adjustments are done that can change how they are viewed.

With fuel prices increasing, businesses that ship and deliver their products can instead add a surcharge of fuel to the delivery costs. In fact, adjustments to the delivery costs need not only be tied to fuel prices. If the costs of producing or purchasing goods increase, the delivery prices can take the bulk of the price increase. A clever businessperson will understand that price adjustments don’t need to be one-to-one changes. They will divvy up price increases across different avenues proportional to how little it will affect the customer’s perception of the business. After all, even if the price increase is overall the same, it’s the psychological perception of those prices that impact buying decisions.

There is also the option of differential price increases based on customer profitability. For example, more profitable customers will see the lowest price increases while profit margins from less profitable customers will see a greater increase. This can backfire, however. Some customers will be glad to know that they won’t have to fork out more money to spend on the products and services that they already have, but others won’t be too impressed when they receive drastic price increases. It is preferable to have blanket price increases if customer retention is important.

Finally, immediate drastic changes are often worse than gradual incremental changes. Not only does it seem like a less noticeable change overall, but it gives B2B customers ample time to adjust.

They cut down on costs

While increasing prices are one way for a B2B business to maintain cash flow with inflation, decreasing expenditure is another. B2B businesses should scour their expenses for wasted money. Are there tools that employees are not utilising? Are there expensive and extensive services where only half of the functionality is actually useful? Perhaps there are cheaper alternatives with only the features that are required.

Negotiating prices with suppliers is another source of cost-cutting. It doesn’t even have to be large price reductions across the board, small changes here and there might suffice. As with adjusting one’s own prices, selectively negotiating prices to compensate for other costs can be useful in maintaining supplier relationships.

There are also times when products and services are unnecessarily costly. Are there unnecessary features that customers do not care that much about? Reducing a product down to the most used features allows money to be saved even if the price of the product or service isn’t proportionally scaled down. Again, it’s in the psychological perception of price. But there are times when customers may reject the loss of functionality. In that case, B2B businesses can offer alternatives.

They adjust the product mix

When price increases are necessary, one way to mask them is to add a new feature to a product or service that costs less than the price increase. In this way, the price increase is seen less as a price increase for the sake of it and more of a price increase due to upgrades. Or, if features are being lost, other benefits can be offered in their place.

Where inflation is a reminder to rethink business relationships for a B2B business, it is also a reminder to reassess the product mix entirely. Which products are bringing in the most revenue and which are wasted expenditures? Inflation is essentially a driver of financial efficiency. Products are brought on and taken down to maximise profits as it is with other business functions.

They allow for losses

Many B2B businesses fear exaggerated losses. When taking the proper precautions, this is often unfounded. It is natural to incur some losses in the beginning, especially when testing the inflation waters, but in the long-term things usually settle down. It’s the short-term that worries people.

At times, maintaining customer and business relationships is more important for long-term success than worrying about cash flow in the short term. This means that B2B businesses may have to be prepared for losses in order to maintain important business relations in the future. If capacity is strained, dropping low profit leads might be more beneficial if more attractive leads can be pursued.

Ultimately, inflation results in financial strains. With a bit of elasticity, these strains can be alleviated. Sometimes, those strains are necessary for businesses to be placed into a less strained position. These are only some of the options available to B2B businesses, but a smart businessperson knows how to make it to the long term and come out successfully.