Combat inflation: Practical strategies for sole traders

Published Wednesday 5 November 2025

Table of contents

• What is inflation?
• How does inflation affect sole traders?
• What can sole traders do to mitigate the effects of inflation?
• Protect your business from inflation's long-term impact
• FAQs on combating inflation

Key takeaways

• Monitor your cash flow regularly using forecasting tools and track money movement to spot financial problems early, while chasing overdue invoices and negotiating supplier payment terms that align with your cash flow cycle.

• Implement strategic price adjustments by researching competitor pricing and raising prices selectively on high-value services rather than applying blanket increases, while clearly justifying increases to customers based on rising costs and improved service quality.

• Improve operational efficiency by grouping similar tasks together, automating repetitive processes like invoicing and expense tracking through accounting software, and streamlining client communication to free up time for strategic planning.

• Optimize your marketing strategy by focusing spending on channels that deliver actual business results, targeting your audience through appropriate platforms based on their preferences, and cutting inefficient marketing investments that don't generate new customers.

What is inflation?

Inflation is the rate at which prices rise over time. It reduces your purchasing power, meaning you pay more for the same cost of goods and services.

Inflation is measured as a percentage called the inflation rate. This shows how much prices have increased compared to the previous year. For instance, Australia's trimmed mean inflation was 3.5 per cent over the year to the September 2024 quarter.

How does inflation affect sole traders?

Inflation hurts sole traders by increasing business costs while making price increases difficult. You face a double squeeze on profitability.

Rising costs affect:

• Fuel and transport expenses
• Raw materials and supplies
• Service delivery costs, which have increased with services inflation at 4.6 per cent annually
• General business overheads

The pricing challenge: Unlike employees who may get cost-of-living pay rises, your service prices don't automatically increase with inflation. Customers experiencing their own financial pressure may resist price increases, leaving you earning less in real terms.

What can sole traders do to mitigate the effects of inflation?

Inflation mitigation focuses on protecting your business profitability through strategies you can control directly.

Key strategies include:

• Cash flow monitoring: Track money movement to spot problems early
• Strategic pricing: Raise prices without losing customers
• Efficiency improvements: Reduce costs and save time
• Marketing optimization: Focus spending on channels that work

Stay on top of cash flow

Cash flow management involves tracking money moving in and out of your business to maintain financial stability during inflation.

Track your cash flow:

• Use cash flow forecasting tools to predict future needs
• Check your closing balance regularly
• Examine net cash flow trends
• Verify your numbers for accuracy

Improve cash flow:

• Chase overdue invoices: Convert outstanding payments to actual revenue
• Review spending:Cut unnecessary costs that drain resources
• Negotiate payment terms: Arrange supplier terms that suit your cash flow cycle

Make price adjustments

Strategic price adjustments help you keep up with inflation without losing customers. The key is research and gradual implementation.

Before raising prices:

• Research competitor pricing for similar services
• Identify which services provide the most value to customers
• Calculate the minimum increase needed to maintain your margins (see our margin vs markup glossary)

Implement price rises strategically:

• Avoid blanket increases:Raise prices selectively on high-value services
• Justify increases: Explain rising costs and improved service quality
• Maintain loyalty: Offer rewards, discounts, or loyalty programs to retain customers

Make more time for yourself by improving efficiency

creates more time for strategic planning and reduces the impact of inflation on your business operations.

Time management strategies:

• Schedule work blocks: Group similar tasks together
• Set realistic deadlines: Allow breathing room for unexpected issues
• Prioritize by importance: Focus on high-impact activities first

Communication efficiency:

• Streamline client communication: Reduce back-and-forth messaging
• Set clear expectations: Prevent misunderstandings that waste time

Automation opportunities:

• :Automate invoicing, expense tracking, and reporting
• Digital processes: Replace manual tasks with software solutions
• Repetitive task automation: Free up time for strategic work

Review your marketing strategy

Strategic marketing helps you attract new customers cost-effectively during inflation, maximizing your return on limited marketing budgets.

Target your audience effectively:

• Older professionals: Focus on LinkedIn and email marketing
• Younger customers: Use TikTok and short videos
• Match channels to customer preferences: Research where your audience spends time

Optimize marketing spend:

• Review channel performance: Track which methods generate actual business
• Cut inefficient spending: Stop investing in channels that don't deliver results
• Focus on immediate results: Prioritize marketing that brings in new customers quickly

Focus on being human

Inflation is stressful for everyone, especially sole traders. In times of high inflation, it can be hard to make time for yourself. Looking after your mental health helps you stay focused and keep your business running smoothly. Your business works best when you are mentally and physically healthy.

Your customers are also people, and they may be looking for ways to manage their costs during inflation. Talk to your customers about your services and your relationship. Ask what they value most before you change your pricing or products. Their feedback can help you decide how to respond to inflation.

Protect your business from inflation's long-term impact

While short-term tactics are essential, building long-term resilience is key to thriving no matter the economic climate. Think about diversifying your income streams to reduce reliance on a single service or customer base. Investing in technology, like accounting software, can also pay dividends by automating tasks and providing real-time financial insights, freeing you up to focus on strategy.

By making smart, forward-thinking decisions now, you set your business up for sustained success. Ready to see how Xero can help you build a more resilient business? Try Xero for free.

FAQs on combating inflation

Here are answers to some common questions about managing your business during inflation.

When should I raise my prices during inflation?

It's best to raise prices proactively rather than waiting until your margins are already squeezed. Review your costs regularly. When you see your expenses consistently rising, it's a good time to plan a price adjustment. Avoid sudden, large hikes by making smaller, incremental changes over time.

How much should I increase my prices to keep up with inflation?

There is no single correct amount. Start by matching your price increase to the current inflation rate to cover your rising costs. For example, monthly inflation was recently reported at 2.1 per cent in the year to September 2024. However, you should also consider your specific industry, competitor pricing, and the value you provide. The goal is to protect your profit margins without alienating your customers.

What if my competitors aren't raising their prices?

Focus on the value you offer. If your service or product is superior, your customers may be willing to pay a bit more. Communicate the value clearly and consider adding extra benefits to justify the new price. Adjusting your prices as your costs rise helps you maintain a healthy business over time.

How often should I review my pricing during inflation?

In periods of high inflation, review your pricing and costs more often – for example, quarterly instead of annually. This allows you to stay agile and make necessary adjustments before your cash flow is significantly impacted.

What are the warning signs that inflation is hurting my business?

Watch for signs such as lower profit margins, tighter cash flow, or needing to adjust how you pay suppliers. Tracking these metrics in your accounting software helps you spot changes early. Regularly tracking these metrics in your accounting software can help you spot trouble early.