Should I Increase My Rates for Inflation?
TRANSCRIPT:
Hey guys! Welcome to Work Your Biz Like A Boss! Today, we’re going to tackle the topic of inflation and whether you should raise your rates. We’ll look at three scenarios so you can evaluate your business income and plan and then decide what course of action is best for you.
WHAT IS INFLATION?
Inflation is very simply an overly heated economy—to much money in circulation often from printing money and infusing the economy with too much money. COVID, money printing, and handouts have created inflation. On top of that, supply chain issues, oil drilling discouraged here, rising fuel prices, and increased interest rates are not helping at all. In fact, if drilling increased and gas prices fell, inflation would subside. But with current economic policies, that will not happen.
WHAT SHOULD YOU DO?
The first step in dealing with inflation and it’s affect on your business is to evaluate a few things:
Do you have overhead expenses? If you are a service-based business, your overhead might be lower than a product-based business. Like my business is low overhead. I work out of my home. My only expenses are Internet, some fuel to meet with clients, and typical office expenses. I have more like advertising and vehicle payments, but I have a lot of control over my expenses; therefore, I have NOT increased my fees and have no plans to do so in the immediate future. On top of that, my hubby works, we don’t have any credit card debt, and our housing expenses are super low. We, also, live in a more rural community so commuting is minimal. If this fits you, you might consider keeping your rates the same. If you have inventory, high overhead costs (business location, lots of commuting, high advertising budget, etc., you probably need to increase your fees.
How is your current financial health? Your current financial health can play a huge part in the decision to increase your rates, but it shouldn’t be a reason to increase them exorbitantly. What do I mean? If you have a lot of consumer debt and businesses expenses, inflation is probably hitting you hard. Being in debt during this time is not ideal. However, your customers/clients aren’t responsible for your current financial health and will not be willing to pay the price. Even so, an increase might be necessary to ease some of the burden. This is also a time to really focus on paying down debt and curbing spending. What?! We’re in a financial crisis in the middle of inflation! What do you mean pay down debt? How? I have always found no matter the current economic situation, financial health is more a heart issue that is affecting how you manage money. Money might be neutral but the heart and emotions tied to it are not. There is such a thing as your relationship to money. I don’t have time to go into all of that, but I’d start with examining how you’re spending your money. Often we don’t need more money; we need to manage it better.
Do you have a cushion? In my case, my husband’s job helps create a cushion so I can take a inflationary hit and keep my fees the same. I’m also still gaining new clients while keeping my former ones. You might not have that. Your business might be the only income you have and inflation is really harming you. If that’s the case, you need to go up.
HOW MUCH SHOULD I INCREASE MY PRICES?
That really depends on your current financial situation. If your finances are already tight, you’re a startup with a lot of startup expenses, you have no cushion, and you are struggling, sit down and decide what would help ease the burden but also include the question of how much your clients would be willing to pay. If you’re in a pretty health financial situation, have some cushion, and no or little debt, but you have taken a hit due to possibly inventory or commuting, go up, but I’d keep it as minimal as you can.
HERE’S A SECRET
Research tells us that if your clients like you, they are willing to pay you more even if your product or service is inferior to another’s! That’s right. If you have been providing excellent customer service (and, hopefully, an excellent product or service), most of your clients will be willing to pay you more. If not, you might be in for a world of hurt. Nothing is more superior and safe for a business than providing excellent service.
Not long after the gas prices skyrocketed, my massage therapist went up significantly ($50 bucks to be exact for my two massages a month). On top of that, the cupping was going to be extra. I had a choice. First, there was no way I was going anywhere else. I’m friends with my massage therapist, she is phenomenal, and I really like her. That left me with cupping or no cupping. Well (and don’t tell her this), I hate cupping. Lol! It never helped me so that was an easy one to make. Plus she added use of the massage gun in my regular massages, which I love. Spending an extra $50 was a blow to me more mentally than anything, but I was willing to pay that plus I had already rearranged and eliminated some things I didn’t want to pay for anymore way before inflation hit so I was good. Adding on some type of benefit or service that costs you nothing can ease the blow for your clients if you must go up.
THE FUTURE
In the course of your business, there will be great economic times and terrible economic times really depending on the policies of the Whitehouse, unfortunately. But their poor decisions shouldn’t ruin you.
When this President was elected, I knew we were in for some rough times. It wasn’t hard to see. You can literally look at the policies of democrats in the past and see that taxes go up, the economy flows, and regulation increases hurting small businesses. Therefore, my husband and I sold a property and put the majority of that on his business property in a refinancing significantly lowering our payments and interest.
We also bought my husband a Harley with cash because I knew that drilling would be discouraged and gas prices would spike. He has a diesel pickup and that would be a HUGE burden right now. But with his Harley, we reduced his fuel 80% of what it would have been. I already have a low fuel mileage car but have definitely felt the hit but not enough to charge my clients more.
We also paid down and off our consumer debt while the going was good from 2016-2021. The bulk was paid off in 2020 and then our emergency savings built up in 2021. I’m still adding to it and was buying crypto and looking into the stock market but these economic policies are hurting those areas so I’m holding off and looking at other ways to create passive income and try to ease the blow of inflation on our wealth.
Regardless of your political alliance, it’s a historical fact that conservatives create policies that support economic health and prosperity for businesses, and democratic policies harm small businesses. This is not a podcast on who to vote for, but it’s a common sense episode on what to do during inflation, how to prepare yourself for future inflation, and how to recognize if we’re headed for economic trouble.
I don’t have much hope that things will change soon. In fact, I’m concerned that things might get much worse. I’m doubling up payments on our building, curbing spending, and being very strategic. Hopefully, you can do the same. One thing I am very thankful for is all of the lean years when my husband and I learned how to be poor. That knowledge means we can always live poor meaning we know how to cut costs significantly and can do so any time we need to.
I hope this helps you. I feel like I’m a momma giving you some bad-tasting medicine, but sometimes it’s necessary, especially if you love those you’re giving it to. And I love all of you very much.
