Should I Invest In My Business When Interest Rates & Inflation Are High?

A british pound coin standing upright with stars behind it and four more pound coins laying down around it which are about to be used to invest in a business by a business owner.

Investing in your business when interest rates and inflation are high can be a complex decision, as it depends on various factors. High-interest rates can impact a company’s ability to invest in growth and innovation since the cost of borrowing money becomes more expensive. Inflation also plays a crucial role in any investment decision, as persistent inflation can affect a business’s ability to meet its financial goals and puts pressure on production overheads and wages.

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Does this mean that businesses should hold tight on hiring new people, purchasing new machinery, and investing in marketing until interest rates and inflation have stabilised? Not necessarily, and in many ways, the same rules apply to business investments during high inflation and interest as they do when these rates are lower.

The Varying Impact Of Inflation And Interest Rates

It’s important to note that high inflation and interest don’t impact all businesses and sectors equally. Established businesses with a positive cash flow, for example, may stand to benefit from rising interest rates, as it gives them the capability of investing their positive cash flow into higher-yielding investment strategies, such as automation, new technologies, and marketing/sales. Equally, some sectors may even benefit from rising interest rates as this can lead to a slowdown of growth, which in turn helps control inflation, reducing wage pressure and operating costs. Most specialists generally advise against long-term fixed-income investments during periods of inflation, in favour of investments with the potential for increasing or above-inflation returns.

How Does This Apply To Marketing And Sales?

Given the complexity of current economic conditions, we recommend consulting with a qualified financial adviser and conducting thorough independent research before making any major investment decision for your business.

One thing we can say with confidence is that for many businesses, the marketing and sales budget is the first to take a hit when operating costs rise. This is unfortunate because investing in growth is the proven best way of navigating periods of economic uncertainty and laying the foundations for renewed growth when conditions stabilise.

Marketing is an investment in your long-term future growth and prosperity, so like an investment in plant, machinery, or property, is worthy of careful consideration. If you are borrowing money to finance your marketing, high-interest rates could make your strategy more expensive and put pressure on your budget, while inflation may increase the cost of marketing services and materials.

Despite these potential challenges, however, there are strong reasons why investing in marketing during uncertain times is beneficial. 

  • Firstly, sustained investment in marketing through rain or shine can help your business maintain or boost its market share during tough economic times, helping you stay connected with your customers, understand their changing needs, and adjust your offerings accordingly.
  • Secondly, investing in marketing while others are cutting back on their marketing efforts due to increased costs might give you an important competitive edge, helping your business stand out as a strong and resilient service provider.

Forecasting Costs And ROI

Before making any investment, it’s important to forecast your costs and returns over the period of your investment. During previous recessions, increased interest and inflation sometimes reduced the expected ROI from marketing by increasing costs and mitigating returns. However, important technological advances in marketing technology, including automation software, social media, digital collaboration tools, and analytics, have dramatically increased the potential returns from digital marketing activities, so that a positive ROI is achievable within a short timeframe, despite high inflation and interest.

Find Out More

Our experienced marketing team can help you develop a personalised business case for digital marketing, supporting you to define your marketing goals, identifying key metrics for success, estimating your marketing costs, and forecasting your results and ROI. To find out more, please get in touch today.

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