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5 Tips To Help Small Businesses Tackle Rising Production & Operation Costs

Updated: Jul 27, 2023

The COVID-19 pandemic required small businesses to make many adjustments over the past few years. We have pivoted online; changed prices; tweaked product offerings & designs; adjusted marketing strategies and invested in education so we can make better decisions. Although we are learning to live through the economic impacts of the pandemic, we are starting seeing new challenges arise which require a new lens on flexibility and sustainability: rising production & operation costs.

CNBC recently posted an article called "A new inflation reading shows the small business tipping point has been reached". This article talks about the impacts inflation is having on rising costs for small business.

“They are getting squeezed by supply chain disruptions & inflation & workforce shortages & already had to reinvent themselves a few times over in the past few years, and are running out of options. They are continuing to adapt ... but you can only increase prices so much before you might see a loss,” - Kevin Kuhlmann

Does this sound familiar?

  • Labor and service provider costs have increased.

  • Shipping costs have increased.

  • Material costs have increased.

  • Technology, software & apps used to operate our business has increased.

Cost increases are not the issue as this is not the first time we've had to adjust. The challenge is the amount of increases and the rate at which it is increasing. My job as Founder + CEO of 37 Oaks is to keep a finger on the pulse of what is going on in the larger commerce environment and provide insight and resources on how our small business owners can begin to combat it.

Based on what I am seeing in the market now, we need to keep the same mindset we've had over the past few years regarding being flexible and making tough decisions. We just have to look at it with a different lens now. Here are 5 tips to help small businesses tackle rising production and operational costs.

Tip #1 -

Simplify Product Options

In the retail world, we call this SKU rationalization. This is the process of evaluating which products you should add, keep or remove from your product offering. Now is a perfect time to go through this process because, at the least, may help reduce inventory costs.

Begin to explore ways to narrow your assortment to products that use the same or variations of the same ingredients. The more you are able to consolidate materials and vendors, the more likely you will save on costs.

This is not an easy process and we are not saying to eliminate top products because they have unique ingredients. But we are saying to take the time to thoughtfully and strategically assess opportunities to adjust your assortment to leverage material and production costs. If you need help in understanding this process, check out 37 Oaks University On Demand Assortment Optimization course. You can purchase and watch it NOW from the comfort of your personal device.

Tip #2 - Leverage Group Purchasing

In times like this, community and collaboration is especially important. There are plenty of business owners within your category that are sourcing similar materials as you do, but they are doing it individually. Larger organizations benefit from volume discounts and are therefore a priority with vendors due to the large amounts they purchase. On the contrary, small businesses are on the opposite end of this spectrum. Now is a great time to consolidate purchases among a like-minded entreprenures so you can tap into purchasing benefits that will improve our business health and sustainability.

You know other Makers in your category that produce similar products as you do. And if you don't, start to meet them. Although they may be considered competitors in your category, leveraging purchasing power does not have to expose any company secrets, especially regarding basic, commoditized ingredients. Begin to develop these trusted relationships and discuss partnership opportunities around materials, vendors and costs. 37 Oaks Community is a great way to meet business owners in your category and explore synergies.

Tip #3 - Make Product Design Adjustments

Many of us are creatives and it is reflected in our product. But, we are also entreprenures and need to be business savvy if we are going to share our talent with the masses in a profitable and sustainable way. Sometimes the creative and business worlds do not mesh as easily as we want, but honestly, it's our job to figure it out.

You have a vision on how you want your product to look, taste, feel, present, etc. But this is the time to be flexible, creative and evaluate what operation & production adjustments you can you make to save costs without reducing customer satisfaction.

We know this is not an easy or fun exercise, but it is necessary. A good place to start is to OBJECTIVELY evaluate the "Return on Investment" for each operation & production element you are using (and paying for). You then evaluate how and/or how much any adjustments will impact the customer experience.

Prepare for this to be a process, so it helps to have someone facilitate the process if you are not confident that you can be objective or if you are new to the process. You can always sign up for a 1:1 coaching session with with an expert from the 37 Oaks Coaching Community. Join the community for free here.

Tip #4 - Negotiate

“Let us never negotiate out of fear. But let us never fear to negotiate.” ~John F. Kennedy

There are many articles and perspectives discussing the upper hand that suppliers have in this current environment. Demand is high, supply is low, so they are #winning. That may be the case, but we would be remiss if we did not include "Negotiation" on this list.

There are always opportunities to negotiate. A good place to start is to identify the top 10 production, service or overhead costs that would have the biggest impact on your business if reduced. Then, contact those vendors to discuss ways to reduce costs. Whether you get a big win or a few small ones, every little bit adds up.

Tip #5 - Review Cost & Price Structure

It is very clear that navigating these bumpy waters requires us to understand our numbers. We can't identify ways to improve anything if we don't know what we are improving.

  • Cost of Goods: What are all the accurate costs of every ingredient, labor and overhead that goes into making our product?

  • Pricing: Are there opportunities to price your product in a way that attracts customers and provides the most margin for your business?

  • Margin: Is this cost and pricing structure optimized in a way where you are making the most margin possible?

If you have taken any of the 37 Oaks University courses, you know we always talk about testing, learning & adjusting. And answering these questions may require all of this. We cannot sustain our business if we do not have the funds to do so. You can get loans, seek investors, but optimizing your margins in a great place for business owners to begin. Financial management can be an area of opportunity for many of us. If you are in the early stages of these processes, check out 37 Oaks University On Demand Courses

Intro Costing Goods, Intro to Pricing Product and Intro to Retail Math courses. They will provide frameworks and foundational education to get you started. You can also join conversations from business owners & experts on this topic at 37 Oaks Community Forum on the "Financial" channel. Join the community for free here.

Rising costs are a reality of our times. The fact that we are seeing mass cost increases at alarming rates make it hard for us to keep up with it all. We are very familiar with the ups and ups and downs of entrepreneurship and this just requires us to look at sustainability and resilience from a new lens.

37 Oaks has an ecosystem designed to educate & prepare product businesses for growth through wholesale, storefronts, e-commerce and pop ups. Lean on us for education, insights and resources to help navigate through these times.

Check out a few of our resources to get started...

Terrand Smith


37 Oaks


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