Is The Rising Cost of Commodities Drowning Your Business?: 5 Tips to Stay Afloat

Is The Rising Cost of Commodities Drowning Your Business?: 5 Tips to Stay Afloat

As the price of basic commodities including corn, soya beans, wheat, sugar, and precious metals continues to rise, as fuel continues to command well over $100 a barrel, as the U.S. Dollar weakens and inflation starts to rear is hoary head, small businesses are getting squeezed.

No, it’s not a pretty picture. In fact, it’s all a big recipe for disaster for countless small businesses still smarting from the Great Recession who do not even have economies of scale to rely on.

If your small business is being crushed by the wave of recent price increases, you may not have to ring the death knell just yet. Here are five actionable areas for consideration and evaluation in your business that can help soften the bite to your profit margins:

1. Look for ways to conserve resources. This first tip may seem self evident: save money by using less while still maintaining your current level of production and quality. But surprisingly, many small business owners under-emphasize this area. In a previous post, I offered several, relatively inexpensive ways small business owners can realize significant savings in their fuel expenses, but there are many other things you can do. Here are some examples:

  • Make sure you are conserving your utilities. There are many, inexpensive products on the market that can help you lower your business’ electricity, gas, and water bills (examples: CFL light bulbs, thermostats, motion sensors, electronic timers, and faucet aerators). All it requires is a little time and research to see what would work for your business.
  • Take a look at your production or manufacturing cycle to see where you can reduce waste or even better, turn that waste into a usable product. An example: A construction company invests in a tree mulcher or wood chipper attachment to turn cleared away trees into mulch or compost.

2. Look for alternatives and substitutions. In some cases, you may be able to substitute a higher priced material for one that costs less. Just make sure that you are not compromising on the quality of your product or service (unless you intend to clearly communicate it to your customers). Here are some examples:

  • Using natural gas for heating or cooking instead of electricity/oil.
  • In the early 1900′s, Kimberly-Clark used wood pulp instead of cotton (which had dramatically increased in price in the years before) to produce surgical dressings.

3. Join forces with other businesses. Whether you buy products or supplies via an established buying group, or you network with local businesses on your own, there is often more power and savings in numbers. Vendors typically extend discounts to those who make very large purchases at one time. By pooling their needs, small businesses can capitalize on this discount the same way big corporations can.

But buying in bulk with other businesses is not your only option. You may also want to try other creative alliances, such as business barter exchanges, where you could ultimately realize significant savings in costly commodities or services.

4. Pass the cost on to your customers. Most small business owners cringe at the thought of raising their prices- especially when consumer spending is tentative and volatile. But sometimes a price increase is both appropriate and necessary. Moreover, if you do it right (i.e. you put some effort into determining the the best time and amount for the increase and you make the change clearly known to your customers), in the end you may not lose much business.

One last point: Part of your pricing strategy may require that you look for ways to add to the perception of value of your product or service. So, for example, after a price increase you may want to highlight your unique customer service or offer customer loyalty rewards.

5. Change the focus of your business. In some cases, it may just be more profitable and suitable for you to either cut an expensive product line or enter new market where you can offer a cheaper product or service. Again, some time and research will likely be required so that any decision you make will be an informed one. Here are some areas of consideration:

  • How will the change affect your current sales?
  • Is there a demand for the new product/service in question?
  • How much money and/or other resources do you expect to save?
  • How will this affect your company brand/image?

In short, you do not have to take the rise in commodity prices sitting down. There are several things you may be able to do within your small business to help you weather the storm. But you have to put in some time and resources and maybe make some decisions that are not so easy. In the end, however, your business, your employees, and your customers may benefit greatly.