Managing Increased Costs and Margins in an Inflated World

You can feel it every time you drive up to the pump. The world is experiencing an inflationary period which has led to increased costs and margins for your business. Facing competition from abroad and within, your company might struggle to maintain profits as its prices continue to rise.

Realizing how the current economy impacts HR and your business is the 1st step toward addressing its harmful effects. Some common strategies to start this process include ensuring your pricing is consistent with the current market conditions or increasing efficiency through process improvement.

You might also consider initiatives like restructuring departments, automation, and outsourcing specific tasks. Lastly, businesses can seek outside funding to offset increased expenses.

How do increased costs and margins affect HR?

Your employees may not be able to afford returning to the office as companies begin implementing their return to the office (RTO) plans. However, employees and leaders often disagree about whether to work from home or return to the office. Workers argue that WFH is cheaper.

Additionally, employees may quit when they can’t afford to commute or eat lunch at the office. Another huge expense is childcare. People sometimes pay to work, which makes quitting more affordable.

Lockdowns that forced many of us to work from home taught us that we could save thousands a year — not to mention countless hours — on commuting costs by adopting remote work. So it shouldn’t be surprising that employees want to return to this model to save money on something that drains a significant amount of salaries.

Employees have also begun turning to company-sponsored mental health resources to cope. Enduring the mental strain of one of the worst cost-of-living crises in recent memory, it’s no wonder mental health needs have risen.

Keep your pricing consistent with current market conditions

Managing inflating costs can be difficult for companies, particularly with high fixed costs like infrastructure or manufacturing. Survival in an inflating economy requires businesses to find ways to keep costs down while still meeting customer demands. This can include reducing overhead expenses or finding new markets where cost is a lesser factor.

To maintain a positive relationship with your employees, keep your pricing consistent with current market conditions. Increasing prices can lead to frustration and decreased morale, especially if wages aren’t growing simultaneously.

Additionally, keep your margins in check. If costs rise faster than revenue, you may have a difficult financial situation. By keeping your pricing and margins in line with the market, you can ensure that your employees are happy and your business remains healthy.

Increase efficiency through process improvements

Increasing efficiency can be challenging, as it often requires pricing, production, or sourcing adjustments. However, by employing sound planning and management practices, businesses can optimize their operations in an inflating economy. As a result, many companies have found ways to improve their processes and become more efficient.

Outsourcing non-core functions such as payroll or accounting can free up internal resources to focus on other tasks and save costs.

Develop standard operating procedures (SOPs) for specific tasks or areas of the business. This can ensure that everyone is doing the same, leading to increased efficiency and reduced mistakes.

In addition, outsourcing non-core functions such as payroll or accounting can free up internal resources to focus on other tasks and save costs.

Some companies, especially smaller ones, have found success in hiring consultants. They specialize in helping companies improve their processes and efficiency by identifying ways to reduce costs or increase revenue. For example, some consultants may suggest cutting back on staff or spending more on advertising or marketing campaigns.

Additionally, making process improvements can help improve communication and collaboration among employees. HR professionals can also improve process efficiencies by implementing best practices for employee recruitment and onboarding.

Finally, businesses can see a big difference in efficiency and productivity by making small changes.

Consider automation to help you do things faster and better

You might also consider automation, which allows you to do things faster and more accurately to help combat inflation and increased costs. Automating can speed up tasks and reduce the need for manual input, which can lead to fewer errors.

In addition, it can help you improve margins by allowing you to produce more labor. While automation may seem daunting, many tools make it easy to start. Ultimately, automating your business could help you stay competitive and profitable.

A business must always be able to see the big picture. You cannot get caught up in the minutia of day-to-day operations, especially if your business is facing a downturn.

So, let automation do the heavy lifting, and you can focus your energy on keeping the company afloat in inflationary times.

Seek outside funding to offset increased expenses

The pressure to increase margins and manage costs is always challenging for business owners, but it can be incredibly daunting during increased competition and economic uncertainty.

One way to overcome these challenges is to seek outside funding from venture capitalists, angel investors, or bank loans. This can provide the capital you need to maintain or expand operations while giving you access to new resources and expertise.

The main advantage of seeking venture capitalists, angel investors, or bank funding is that you can give your business the boost it needs to take off. With this money, your company can hire more employees, expand its operations, and market its product or service more effectively.

In addition, this new money can lend credibility to a young company and help attract other investors down the road.

There are also some potential drawbacks when seeking out venture capitalists. They can provide a lot of money but often want a significant ownership stake in your company. They may also want to be involved in running the business.

Angel investors are typically smaller-scale investors who may be more willing to give you money without taking as much equity in your company. Bank funding can be hard to get, but it doesn’t involve giving away any ownership of your company.

Regardless of your choice, there are some things to keep in mind. First, make sure you have a clear understanding of what the investors expect from you. Second, be prepared for a lot of paperwork and negotiations — it can take a while to finalize an agreement with investors.

The search for alternative funding sources is often driven by the need to maintain margins. In a tight economy, companies can’t afford to let their margins shrink, as this can lead to decreased profitability and even bankruptcy.

Use multiple strategies to mitigate the effects of inflation

Managing increased costs and margins is no small feat in an inflated world. As a result, your business will need to employ more than 1 strategy.

However, you can still mitigate the effects of inflation and maintain a healthy margin. Navigate these challenging waters by being mindful of the various factors impacting your expenses and pricing — focus on productivity and efficiency.

You must be proactive and strategic in your decision-making. First, develop a focused battle plan for potentially rocky economic times from vendors, to equipment, to pricing models.

Next, create a winning inflation strategy with stakeholders. Then you won’t have to fight inflation alone — instead, delegate tasks to others who can do them more efficiently.

Ultimately, it is up to you to ensure that your organization remains viable and profitable in an ever-changing marketplace.