How to protect your profit margin in 2022
Be proud to be a ‘details’ nerd.
As exhausted as you are, not from a full house day after day, but from COVID related disruption, you must still face the brutal reality of high-inflation.
You can do it. You can maintain your profit margin and have the right frame of mind for a great summer. Allow yourself to feel hugely optimistic. You know better times will arrive; just ring your mate in Australia.
I’ve deliberately used lots of ‘YOUs’ and ‘YOURs’ in the last sentence, because that’s where your answers can be found.
Our last post talked about strategies to help manage inflation.
Here, we focus on maintaining your profit margin.
Brutal Fact: The price of doing hospitality has rocketed upwards.
Face the brutal fact quickly.
As you know (only too well), our industry has many moving parts all of which need detailed attention for success.
If you currently have accurate COGS management and your margins are diminishing, what should be your number ONE move?
Take a deep breath and raise your prices.
You must look ahead and do whatever you need to do to maintain your margin. Do not continue to take the hit until you believe business will pick up and inflation will plateau.
You must increase your prices and pay staff who themselves must be protected from the impact of inflation on their lives.
If you want to count on your team to be engaged and focused on the financial performance of your business then you must also engage and focus on them.
Your staff can help protect your margin by delivering an UGX (unforgettable guest experience) to every customer which will help buffer the business during this extremely challenging time.
Price increases in hospitality have always been a tough call.
We know you will be nervous about how customers will respond and that’s why your price increases cannot be implemented in isolation.
Make sure your cost of goods management is SPOT ON.
Make sure your remuneration scheme works well and your team understands the financial game plan perfectly. You will need to move like synchronized swimmers.
Price increases are especially tough if you haven’t put your prices up for some time. Small increments are better over time. Avoid giant leaps if you can, but make a move NOW and then make further adjustments over the season.
Okay, so Customers don’t like paying more for something they could get for less.
But current inflationary pressure means you can't afford to not increase your prices.
This is not price gouging or profiteering…it's simple math.
But (again) make sure your business works as cost efficiently as possible because that’s your edge in the current climate.
The costs of your raw ingredients have increased
+ the cost of doing business has increased
= the business needs to adjust accordingly.
You will need to adjust, otherwise a false economy will set in … and the consequences of running a false economy will always be greater long term.
How to communicate price increases with your customer base?
Don’t do ANYTHING by stealth.
Silent moves create distrust; which is the opposite to what you need right now.
Explain the price increase transparently - use the moment to describe how your business works NOT to complain or whine but to reflect your trustworthiness and your business ethics and proactiveness.
Your customers care that you care about your staff and the future of your business.
And describe how you will be working hard to increase value.
Quick tips … on price increases and maintaining trust.
Don’t be quick and reactionary, but fast, thoughtful and well-planned.
Prep your staff to answer all potential questions honestly, comfortably and with pride.
Communicate to your database with a well crafted email message.
Talk about it face-to-face on video via social media message. Communicate how seriously you have taken your decision and why (details can be helpful sometimes) and ask for support and understanding especially for your staff.
Use the moment to build trust.
Everyone understands that if your margins shrink your business shrinks and your team shrinks and the positive impact on your community shrinks.
Your fans don’t want that for you, so keep your fans well informed and don’t forget the ever important UGX!