With inflation at a 40-year high and the Feds pulling their rabbit out of the hat to battle inflation to slow the economy (raise the short term interest rate) through manipulation of its monetary policy, it may take a recession to bring prices under control. And all this on heels of a worldwide pandemic, employee issues, soaring fuel prices and supply chain woes.
While it’s painful, it’s not new. Inflation can be considered a “by-product” of money. In ancient Rome, when the emperor couldn’t pay his bills, he decreed that the (solid) silver denarius be made as only a copper coin thinly plated in silver. With the coin now having less value (less silver) Roman merchants demanded more and more denarii in exchange for goods and the coin’s intrinsic value declined.
When the American Revolution started, the Continental Congress could not afford to buy weapons, outfit soldiers, and pay for a full scale war…so they printed fiat money — paper money made legal tender simply by government decree. Like Bitcoin without high tech.
Just last March, the U.S. Chamber of Commerce surveyed random small-business owners to discover that 85% of respondents said that inflation is a concern, and 1-in-3 respondents rank inflation as their #1 concern. A full 63% have supply chain issues, and 67% have raised prices in response to inflationary pressure.
The numbers were similar across the country and spared no geographical regions or business sectors — it appears we are all in this together.
Because it costs us more to run our business, we need to raise prices to customers in order to offset the increase, and we must hunker down and accept tighter profit margins to remain profitable over time.
Eventually, business should return to normal. Before it does, here are suggestions from the experts at Forbes:
- Resist the urge to wait it out.
- Review your gross profit margins on a product or service basis.
- Look for opportunities to save.
- Have a process to increase prices as needed to maintain adequate profit margins.
- Resist the urge to be a martyr.
Be advised to view pricing as a “formulaic decision” — based on target profit margins that are sustainable. The endgame is this: price your goods and services to allow the business to continue to grow and scale.” Adapt, don’t fail.