While the Canadian economy avoided slipping into recession in 2023, challenges remain for small businesses to grow their profit margins due to inflation and higher-than-average interest rates. 

However, positive signs are emerging. Inflation did dip to 2.9% in January, nearing the Bank of Canada’s (BoC) preferred target of 2%, and many economists are suggesting the bank will begin to trim its benchmark interest rate in the summer or fall as inflation continues to recede. The BoC’s current interest rate is 5% – higher interest rates make goods and services more expensive for consumers – but some economists predict it’ll be down to 3.5% by the end of 2024.

Regarding the economic outlook for 2024, North America is expected to have the highest growth of advanced global economies. However, that growth will be modest – an estimated 0.9% for Canada and 2% for the U.S., our country’s largest trading partner. Think of 2024 as a year of transition for the Canadian economy as interest rates come down and a rebalancing commences into 2025.

How small businesses can increase their profits in a slow economy

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So, how can Canadian small businesses increase their profit margins in an economy that’s still recovering? Here are five tips to consider:

1. Focus on what you can control

You can’t control what happens in the world that influences the economy, but you can control what happens within your business, so put the focus on what you can do. 

For example, look at your materials purchasing and inventory levels, what you sell or provide and how often you conduct regular maintenance on equipment and vehicles and upkeep your commercial property. 

An economic lull allows you to re-evaluate all of these things and take a closer look at improving internal operations and exploring new products and services you want to introduce. 

2. Plan for changing customer behaviour

What do your customers want and value now? What will they want in the future? Are your products and services satisfying their needs? Take a hard look at customer behaviour to determine what’s happening. 

For instance, are they spending less or differently? If so, what are their expectations for the rest of the year? You can get these insights in many ways, including talking to your customers and employees who serve them and ensuring your company’s value proposition aligns with their needs.

You can’t run a business on intuition, so now’s the time to plan. So, if customer sales are down, discover why and consider offering different products and services and rolling out new, targeted marketing campaigns.

3. Review your pricing strategies

It’s difficult to make a convincing argument to raise your prices in a sluggish economy. It’s one of the many things Canadian small business owners worry about, as per the Zensurance Small Business Confidence Index 2023 survey, which found that 80% of business owners cited the need to increase their prices as among their top concerns.

However, McKinsey & Company estimates a 1% price increase can raise a business’s operating profits by 8%. That might not work for every type of business. But explaining to customers why your prices have increased, providing additional value for the product or service, offering tiered pricing options, or changing the descriptions of your products and services to differentiate what you offer from the competition can help position a price increase favourably.

4. Manage your cash flow

Efficiently managing your cash flow is vital for ensuring you have sufficient funds to cover business expenses and long-term sustainability. 

Creating a budget and tracking all income and expenses helps with planning and making sure you spend appropriately, including all expected costs such as payroll, rent, inventory, and marketing. Furthermore, negotiating better terms with suppliers to allow more time to pay and cutting unnecessary expenses can help you strike the right balance, as does providing customers with incentives for making early payments for services rendered.

5. Reward customer loyalty

You need to grow your customer base, but not at the expense of losing existing customers who are loyal to your business. 

Emphasize retaining your existing customers by offering discounts, referral incentives, and loyalty rewards to encourage repeat business and foster long-term relationships with them. 

You can also do cost-effective, personalized things like sending handwritten birthday greetings or gifts to regular customers. Of course, consistently providing exceptional quality and service with every customer interaction helps build loyalty, trust, and encourages repeat business.

Protect Your Business’s Financial Resiliency: Get Low-Cost Insurance Coverage

Another critical component of ensuring your business’s financial wellbeing is protecting it and your customers with a comprehensive but low-cost business insurance policy.

Zensurance can help you with that. Fill out our online application now for a free quote.

Our knowledgeable brokers will shop our partner network of over 50 insurers to find the comprehensive coverage your small business needs and customize it to suit your budget.

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About the Author: Brandon Bowie

Brandon Bowie is a Team Lead, Professional Lines at Zensurance.