3 Inflation-Proof Metrics to Protect and Grow Your Business

In times of inflation, many businesses see what appears to be positive sales growth, when in reality, they may just be keeping pace with rising costs. As proactive accountants, we help business owners understand what's truly driving their growth and how to make strategic decisions to drive profit in any economic climate.

Why Traditional Sales Growth Metrics Can Be Misleading

When reviewing your Profit & Loss statement, it's easy to focus solely on the top-line revenue figure. However, in inflationary periods, this number can be particularly deceptive.

Consider this example: McDonald's could celebrate that a Big Mac which once cost 45p now sells for £4.99 – appearing to show tremendous growth. But is this actually success? In real terms, accounting for inflation over decades, the profitability might have barely changed.

This is what financial experts call "sales mix" – understanding the underlying components that contribute to your overall sales growth. As your Finance Director or Finance Manager should advise, tracking these metrics is essential for making informed strategic decisions about your business.

The Three Key Components of Sales Growth

To truly understand what's driving your business growth, you need to break down your sales performance into three distinct metrics:

1. Price increases

2. Quantity of products sold

3. Number of customers served

4. 
   

Let's examine each of these components and how they can impact your overall Business Growth strategy.

1. Strategic Price Increases

When we talk about price increases, we're not referring to simply adjusting prices to keep pace with inflation – that's merely maintaining the status quo. True growth through pricing involves strategically increasing what you charge relative to your costs.

This approach is particularly effective for businesses that face some form of capacity constraint:

• Restaurants with limited seating that are consistently fully booked

• Service businesses with a cap on how many clients they can effectively serve

• Professional services like coaching or consultancy where time is the limiting factor

  
  

For example, at Profit Cash Growth, we've positioned ourselves as a premium accountancy service with a higher price point than typical High Street accountants. While a traditional accountant might handle 100-200 clients, our accountants maintain a ratio of around 1:20, allowing for a much higher level of service and, consequently, higher fees.

When passing on supplier price increases to customers, consider adding an extra 0.5% beyond the required increase. This small addition can significantly impact your bottom line without being noticeable to customers. For a business with £1 million in revenue, that's an extra £5,000 dropping straight to the profit line.

2. Increasing Product Quantity

The second growth metric focuses on selling more products or services to your existing customer base. This could mean:

• Higher average order values

• Increased basket sizes

• More frequent purchases

• Expanded service packages

• 
  

This metric is often overlooked in Management Accounts reporting, yet it can reveal important growth trends that might otherwise be masked by inflation. A business might appear stagnant if prices haven't kept pace with inflation, but could actually be experiencing significant growth in terms of units sold.

For product-based businesses, tracking the quantity of items sold is straightforward. For service businesses, you might track:

• Number of completed projects (like homes sold for an estate agent)

• Billable hours delivered

• Service packages purchased

• Reports or deliverables produced

  
  

A self-storage business might appear to be growing by simply adding more containers. However, a proactive Accountant would advise looking deeper: what's the occupancy rate of existing containers? Are you maximising revenue from your current assets before investing in new ones?

3. Expanding Your Customer Base

Finding new customers is often viewed as the holy grail of business growth. However, it's not always the most efficient or profitable path to increased revenue.

New customer acquisition comes with significant costs:

• Marketing expenses to attract prospects

• Onboarding costs

• Administrative setup

• Higher risk of misalignment or service issues

• Potential pricing miscalculations

  
  

While expanding your customer base is certainly a valid growth strategy, it should be balanced against the potential for growing revenue through existing customers, who typically cost less to serve and have proven their willingness to do business with you.

Your optimal growth strategy should align with your business model. McDonald's focuses heavily on maximising customer numbers through a systemised approach and low prices. Conversely, high-end professional service firms might prioritise fewer, higher-value clients who generate greater profits with less operational complexity.

Tracking Your Sales Mix for Better Decision Making

To implement these inflation-proof metrics in your business, we recommend adding a "Sales Mix" slide to your monthly Management Accounts presentation that breaks down your growth between:

• Price increases

• Quantity increases

• New customer acquisition

• 
  

This approach provides several benefits:

1. Cash Flow visibility: Understanding where your growth is coming from helps predict future Cash Flow patterns

2. Strategic clarity: You can make more informed decisions about where to invest resources

3. Inflation protection: You'll clearly see whether you're growing in real terms or just keeping pace with inflation

4. Operational efficiency: Resources can be allocated to the most effective growth channels

   
   

Adapting Your Strategy to Economic Conditions

The beauty of understanding these three growth levers is that you can adjust them based on current economic conditions:

• During high inflation, you might focus more on price increases to maintain margins

• In competitive markets, quantity growth through upselling might be your best strategy

• When entering new markets, customer acquisition naturally takes precedence

  
  

As a business owner, you should be constantly monitoring all three metrics, but there will be seasons where you strategically emphasize one over the others.

Conclusion: Beyond Top-Line Growth

In today's economic environment, simply tracking top-line revenue growth isn't enough. Smart business owners work with their Finance Manager or proactive Accountant to understand the components of their sales mix and make strategic decisions accordingly.

By understanding which levers to pull—price, quantity, or customer base—you can create a more resilient business that truly grows in real terms, even during inflationary periods.

When your Bookkeeping and financial reporting includes this level of detail, you're equipped to make better strategic decisions that drive sustainable Business Growth and long-term profitability.

Is your business tracking the right metrics to drive real growth? Contact our team of proactive accountants at Profit Cash Growth today for a comprehensive review of your financial reporting and growth strategy.

Want more insights on driving business growth? Subscribe to our podcast for regular discussions on financial strategies for business owners.