As inflation continues to surge, a lot of small business owners are feeling the pressure to raise their prices in order to keep up with mounting operational expenses. But along with these inevitable rate increases comes a growing concern over how these changes will impact their existing client base. Is it possible to adjust your prices without losing any customers? In this episode, Jon Aidukonis and Gene Marks discuss how small business owners can raise their rates to meet the demands of these inflationary times while also respecting their clients’ needs.

Podcast Key Highlights

  • How Should I Price My Goods and Services During Inflationary Times?
    • Instead of raising your prices across the board, evaluate your data and then, target your price increases based on margins and product lines.
    • You can also increase your cash flow by incentivizing your bestsellers.
    • Another strategy you can utilize is called “shrinkflation.” With this tactic, business owners continue to sell reduced quantities of their services and products at the same price.
    • When in doubt, check the producer price index or the St. Louis Federal Reserve Fred System. These guides allow you to observe the different trends in product and labor costs so that you can adjust your rates accordingly.
  • What Are the Best Strategies for Communicating My Price Increases to My Customers?
    • Send segmented emails rather than blasting a generic message to everyone in your database
    • Try to inform your customers about your price increases as far in advance as possible
    • Give your clients the option of becoming a high value customer
  • How Can I Save Money During Inflationary Times?
    • Implement shrinkflation
    • Reduce production costs through outsourcing
    • Discontinue low profit product lines
    • Build a reserve of operational materials before their price
      rates go up



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Jon: Welcome back to another episode of Small Biz Ahead, the Small Business Podcast presented by The Hartford. This is Jon Aidukonis, and I am joined in person for the first time I think in over a year.

Gene: I know.

Jon: By Gene Marks.

Gene: Actually this is not over a year Jon, I mean it’s been like a couple of years. I mean, right? We’ve been doing all these online and using all these online things and now we’re actually looking at each other. That is progress.

Jon: You could say the first time this decade perhaps.

Gene: Yeah, it’s pretty close to that. Anyway, I’m so excited and thrilled to be back and actually doing this face-to-face.

Jon: Awesome.

Gene: This awesome is really good. It is worth the three hour drive from Philly, so there.

Jon: It’s hard to do the remote thing.

Gene: I agree.

Jon: So I think we got pretty good at it. But you’re constantly, or at least I find I’m stepping on someone.

Gene: Agreed.

Jon: I don’t know what to say. I can’t see when they want to say something. It’s hard.

Gene: And it’s funny and I know we’re going to get way off topic on this, but I talk to people that do these things remotely and they have the same challenges because you don’t know when to jump in when somebody else is talking. I don’t want to interrupt you if you’re about to. Now we’re looking at each other so you can give me the evil eye if I’m stepping over something that you want to say or whatever. So it’s good. I’m really glad we’re back together.

Jon: I always welcome an opportunity to glare. But we’re here today. We wanted to recap, so I think this episode and a couple of the ones you’ll hear if you’re listening over the next few weeks are really going to be about some evergreen topics where maybe advice, rationale, experience over the past couple years have changed, right? So we’ve seen crazy amount of change in the world dealing with the pandemic, to thinking about how to work virtually, to inflation at rates that we haven’t seen in a while. So wanted to hit on some of those things today and we’ll start with the fun one, which is really about how to think about inflation, how to price your goods and services during inflationary times. So I’m going to let Gene start off on this and really kind of get his perspective as the person who’s way more qualified than me to talk about finance, on what impact does that even have on pricing? And should it when you’re thinking about the rate inflation like we see.

Gene: All I can do is tell you what I’m seeing my clients do this year and actually for the past two years, so everybody’s raising prices, that’s like obviously were… And by the way, I mean for 10 years before that people weren’t able to raise prices because there was really no inflation. So I know this sounds bad, but some clients were like, “Yay, we can finally get some prices up and hopefully do stuff.” But we have a bunch of strategies to talk about in this episode. One of them that I’ve seen is this, we have something available to us, Jon, as business owners. My clients do, our parents and grandparents did not have back in the late seventies and early eighties when they were grappling with inflation. And that’s data. So I’m seeing, if you’re looking to raise prices and you’re just going to do this across the board, price increase, stop and don’t do that.

Gene: It’s not only is it lazy, but it’s wrong. What I’m seeing my smartest clients doing is they are looking at their data and they’re targeting price increases. They are doing it based on margins, they’re doing it based on product lines, they’re doing it based on customers, they’re doing it… I have some clients that are like, “This is a great customer of ours, our margins are still strong, actually not going to raise prices on this customer. Look at this person’s sales history that we have. So we’re going to leave them alone. Meanwhile, this other person, we haven’t been making as much money with that customer and we are going to have to raise prices, but for this customer we’re going to give them a 4% increase versus a 3% somewhere else.” So I mean listen, my clients have QuickBooks, they’ve got Sage, they’ve got Zero, they’ve got accounting systems all in place and they are digging into the data and they are selectively doing price increases depending on a bunch of different factors. So that’s what I’m learning, that’s what I’m seeing out there. And not that I remember anything from the late seventies, early eighties, as I was a kid, but I know that businesses back then, small businesses didn’t have that kind of information available to them. So that’s my first piece of advice. Does that make sense?

Jon: It does. And I think when you think about raising prices in general, to me, it comes down to you need more profit to sustain, right? You need more cash flow. And I think there’s other places people can look for that too. So when you’re thinking about what you sell and more importantly I think how you communicate what you sell, there’s a lot of things you can do to make things that are more profitable, seem more appealing. So in true form we can do a restaurant example, like your menu design. If something’s on the top right corner, it’s usually more likely to get attention. So do you want the 20 bucks for a steak that costs you 18 to sell or do you want the $10 for a pizza that costs you $3 to sell?

Gene: Sure.

Jon: So you can also build in ways I think to kind of normalize that without having to jump prices to a point that scare customers away.

Gene: So I’m going to jump in there and I know I always make fun of you because the restaurant examples, you love talking about that. But it’s important and a lot of people listening to this are either in restaurants, they’re in retail, it’s very similar types of businesses. So let me ask you this, because there’s another strategy I’m seeing out there a lot and it has to do with shrinkflation. Are you familiar with that term shrinkflation and what that is?

Jon: I’ve not heard of that.

Gene: So shrinkflation is selling a little less of something, but for the same price. So if you look at some of the big brands that are out there, you will see brands that people that’s up use… It’s well known public information, you can look this up, if you buy a bag of Doritos now it used to be 9.75 ounces for a bag of Doritos, now it’s 9.25 ounces but for the same price. And I recently reported on how Dominoes, they do chicken wings. Now they’re including one or two less chicken wings in a takeout box, but for the same price. Now I don’t know who’s getting chicken wings at Dominoes because I thought it’s like a pizza chain, but apparently people do get chicken wings from there.

Gene: So it’s a matter of selling something, keeping the price, because it’s all about margin, but just selling a little less of something. And this gets back to your restaurant example. You must see that in the places that your friends and the places that you might be involved with in the restaurant industry where restaurants are, if they’re going to serve a dish, spaghetti and meatballs and they used to have three meatballs in the dish, there are restaurants that will say, “Well we’re going to keep the price the same, but there will only be two meatballs in the dish.” Because they can maintain their margins on that. Does that, do you see that and does that make sense?

Jon: I think you see it sometimes. I do think there’s something to be said about I guess shrinkflation or product optimization, right? So if you have a high waste item then you can cut down the waste, it’s probably not going to impact the customer. I think that the risk there is if someone’s expected now something for a long time, which kind of goes into how do you communicate price or product changes overall. So especially if you’re in a more bespoke model you’re recommending, how do you talk to people about what’s changing and why? Because I think it’s a common sense conversation to be able to have if it costs more to make, it costs more to sell. But that’s also a tough conversation to have.

Gene: It is, and it’s funny they say that, because it’s not immoral and it’s not unethical because I can give you 10 big name brands that are doing it and it’s just what people are doing. But you got to be prepared to explain yourself because people find out about it, people write about it or they call you out on it. You have to be able to explain, “Well this is why there’s one less meatball in your spaghetti and meatballs, but we’re keeping the price the same.” So the communication part is important. And by the way, you bring up another piece of information. Well again, we’re talking about strategizing with prices and I mentioned earlier about data that our parents and grandparents didn’t have in the late seventies and early eighties. Another thing that they didn’t have is they didn’t have Outlook or Gmail or Salesforce or these communication and CRM type systems.

Gene: So a lot of my clients, my best ones are communicating price increases. I mean they’re not just blasting out emails to a database. They are segmenting it down and they’re staying in close touch with their customers and they’re doing their very best to communicate price increases as far in advance as they can because we’re all operating in an inflationary environment. So we get it, the prices are going up, but please tell me, give me some advanced warnings so that I can run my business. And my best clients are, they’re saying there’s going to be a price increase on this specific product three months from now and we want to make sure that you’re aware of that. That’s in addition to communicating lead times and order status and people want that. So your point about communicating is super important.

Jon: Yeah, I think it’s interesting too because to your point on customer segmentation and if there’s high value customers, you can give people an option to become a high value customer. So if you think of it like a sale or a savings example, if you’re going to purchase X, Y or Z or pay in a certain way and if you want to do that in the next 30, 60, 90 days, then there’s no net change, it may be a net benefit to you. It kind of gives people options and I think it becomes more of a conversation versus “Hey, I know you just submitted an order then in your card it’s five bucks more.” And footnote, sorry.

Gene: Yeah a hundred percent. And it’s no different than when you’re flying and your flight’s delayed and you just want to hear, “Okay, when is my flight going arrive?” People just want that information and the more in advance that you can give them, the better. Okay, so segmenting your price increases really targeting them by leveraging your data, leveraging your communication systems is big. Shrinkflation was another thing that I’m…. I’m like reporting you, I’m like this is what I’m seeing my clients and my community doing. I’m also starting to see a lot of coming… And I wrote about this for Small Biz Ahead, I’m not quite sure if it’s published yet, but it imminently, about cutting product lines. There is some studies that I looked into that showed that the typical small business, 25% of their products generate 90% of their profits. When you’re in an inflationary environment and every dollar counts, people are taking a step back and saying, “Do we really need to be selling all these products, and what can we cut back?” And I’m seeing a lot of my clients discontinue product lines or outsource it to somebody else or partner with somebody to do it and just focus on those product lines that have the strongest margins that are really making you money. And that’s another sort of tactic in an inflationary period that I’m seeing people do.

Jon: Yeah, I think we saw a lot of that kind of in the beginning of COVID too. So when you think about some of the shutdown orders, after the onset of the pandemic and people weren’t really sure or they were not as consistently open. We heard a lot of that from guests on the show about simplifying products, looking for common ingredients or materials, trying to get the scale benefit of ordering, but also not have a whole bunch of things that might be wasted because they’re used one or two times.

Gene: Correct.

Jon: So I think that’s a good just kind of best practice lesson, that’s kind of a silver lining of maybe every couple months go through and save. If I have this one ingredient for a recipe or this one fabric, but I can do everything else and kind of the thing that I make and it doesn’t inherently break it, maybe that’s not something you need.

Gene: A hundred percent. Because necessity is the mother of invention and you figure these things out when you’re pushed to do it. I think the one warning I heard from some people, that consultants that advise on cutting product lines is, be careful before you cut, make sure that some of your largest customers don’t also buy those products.

Jon: True.

Gene: So you might have this one product that it’s not really doing a whole lot, but it’s like your biggest customer, they need that. So don’t cut it. But it’s definitely a tactic to be used. So see here’s something else in inflationary times, my best clients are buying, where they can, I mean they’re not buying cryptocurrency, they’re buying stuff that they know. So if you’re in the food business, you know food and if you’re in the selling automotive parts, you know automotive parts, they’re not taking risks that way, but they’re storing, they’re building up inventories where they can and where they’re able. Because if we know that inflation is going to continue and it will continue throughout 2023, it’s going to take a while before it gets down to more normalized levels. So if you know the prices are going to go up seven, 8% next year, buy now when you can because buy low, sell high. So I’m seeing a lot of clients do that as well. And again, easier said than done, you need the financing to do it, you need space, but they’re doubling down on their inventories so that they can sort of hedge against increased prices.

Jon: I think that’s interesting too because I think as you’re thinking about things to invest in, service becomes another one. Because the downstream impact is pretty broad and I think when people have financial stressors, it triggers other life stressors, which triggers short patience, which means I don’t want to wait on hold and I don’t want to deal with this at the end of the year when everything’s taking longer to get done and get to where we need it. So I think when it comes to cost cutting, we talk a lot, should you look at staff? Do you look at, can you take on more yourself? Can you outsource it? I’m air quoting here, kind of “simplify it” by maybe using some kind of technology. And I do think back to the notion of communication right now, that human interaction and having someone who can really address a concern is probably something that stands out well beyond the crowd. So I think if you’re in a situation where you kind of have to put more of a demand on your customers or whether from a financial commitment or an effort commitment or whatever it is that’s kind of being impacted by the new reality and the new price of what it costs to do things, like I wouldn’t shy away from service and I might actually double down on it, because that might be the difference between you and the same business across the street.

Gene: And bring up a really good point. I mean there’s all the news around about it being a slowing economy and yet meanwhile, at the same time unemployment is historically low. And I don’t have any clients that are cutting people, particularly small and mid-size clients. It’s kind of the opposite. I mean there’s like 10 million unfilled jobs, they’re looking for good talent to fill those needs for service. In the end you have a customer, you want to keep them and we need to be providing the best service possible and you can have as much artificial intelligence and technologies as you want. But in the end it comes down to good people that are serving your customers. And I have clients that are saying, we see that person that instead of buying up inventory, we’re going to invest in that person because that will have a huge impact on the services that we can provide. And that’s a really important thing to do in inflationary times.

Jon: I agree. And I think good service sells.

Gene: It does.

Jon: So I think that someone who really knows your product, someone who really knows your business, your customer base, they can figure out a way to add more value too, those customers. So I don’t think it can be understated or overstated. I can’t talk.

Gene: No, you’re absolutely right. And even as we’re seeing layoffs happening in some industries and some bigger corporations cutting back, I think it’s an opportunity for a lot of small businesses if they can afford it, to bring on that person, that could make a huge difference in their business. One thing, the other thing I see out there is that although, depending on the industry you’re in, things could be slowing down a little bit, there is inflation out there, but most of the clients I deal with, I don’t know maybe because they’ve been running businesses for a long time, they know it’s cyclical, they’re looking beyond 2023. So if they find that right person, they’re going to make that investment in that person because they’re like, “When this is behind us and we’re growing, we’re positioning ourselves to profit in the future.” So you don’t want to cut back on any of that stuff.

Jon: So when do you think too about your comments on next year and the expected rate, where would someone go who’s not a finance expert to get an outlook on maybe their industry, their product line, the things that they expect to spend money on to start planning on how big of an impact this might have?

Gene: That is a great question and I have a specific answer for that, because first of all, ignore what you read in the media and ignore what I write. It’s a bunch of bologna anyway. So when people report on the consumer price index the rate, ignore that because that’s a lagging indicator. You want to focus on the producer price index, okay? Because that is the leading indicator. That is what it’s costing to make products now that are going to come onto the market in the next three, four months. So the producer price index, by the way guys, it’s not great, it’s still higher than the rate of inflation. It’s going to take a while to work this out. But my advice is you go to the St. Louis Federal Reserves website, it’s called Fred, like Fred Flinstone, for all of you, I’m dating myself here, but it’s the St. Louis Federal Reserve Fred System.

Gene: It’s a database system that’s really easy to use, that will give you metrics on anything that you can imagine, okay? When you get there, do a search for the prices of the products that you are purchasing in your company. So if you’re in the construction business, look up the price of plywood, of concrete, of building materials, of gypsum. If you’re in the food business, you can look up the price, going all the way back to fertilizer and feeds in the ag industry, but food itself of beer and manufactured food products and wholesale prices of food, you can get all that on this Fred website. And when you go, it will show you a history of the prices up to this most recent month. And so therefore you’ll be able to see where the trend is. So again, if you’re in the construction business, you can see where the trending in price, where it’s going and whether it’s plateauing out or if it’s starting to head on its way down. And if you look up three or four of the core materials that you use to run your business and you do it from that Federal Reserve website, you’ll be able to get a fairly good idea of where those costs are heading or whether or not they’ve hit their peak or not. And that’ll help you plan out more. So a specific answer to that question, it’s a hugely helpful site.

Jon: Awesome. No, I think that’s super helpful, because I think then you kind of know, especially if you’re in a wholesale chain, right?

Gene: Yep.

Jon: Are you expecting prices to go up there? Do you have local resources where maybe you can augment where you order some things and actually get kind of the next level down so you can delay your impact a little bit?

Gene: A hundred percent. A hundred percent. And what people don’t realize about the producer price index, is it’s made up of a thousand different components. So when I go to speak to a manufacturing group or to, again, a group in the construction industry or whatever, before I go there, ’cause I want to talk about inflation, I will go and I will look up 10 core components for that industry, that I know they’re using. If they make semiconductors or they make machinery, I look up and I see what are the parts of that machinery. And then I’m like, “Okay, where are the prices going for these parts?” And obviously you can’t predict the future, but you can look at the trends and where it’s going. And that way I can share with them and saying, “Hey, look, in this industry I’m seeing your prices are plateaued for most of these core parts, or they’re actually starting to head down a little bit.” So no guarantees, but that’s the direction that you’re generally going that should help you plan out and plan out your business that much better.

Jon: Awesome. All right, well I think that’s a good-

Gene: Enough about pricing.

Jon: Yeah.

Gene: I’m in the mood for some, I don’t know, some chicken wings from Domino’s. I don’t know about you, but yeah, it puts me in… Some Doritos.

Jon: I haven’t had Domino’s-

Gene: I know. I have not actually, my kids swear by it. They love it. I don’t know. I don’t know.

Jon: Well, thank you everyone for listening, and thank you, Gene, for joining us today. You can catch this on Apple, Spotify, wherever you listen to your podcasts. And check us out at We will catch you on the next one.

Gene: See you soon.

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