Overcome the ‘Deadly Law’ of Inflation with Decimals
Don’t believe it when you hear on the news that we have low or no inflation. In their great wisdom, the monetary powers have conveniently eliminated food and fuel from the inflation calculation. Regardless, even if you exclude food and fuel, a relatively low inflation rate takes its toll on all financial matters over time. This is why an old mentor of mine referred to this dynamic as “the deadly law.” It can sneak up on you if you don’t know how to combat it.
Dr. Joe Webb writes about this regularly and is one of the few industry advisors/consultants (he does not like to be called an economist) who gets this in spades. A dollar today is not what a dollar was a few years ago, and unless you adjust for inflation, you are kidding yourself about the numbers.
Why Should You Care?
I am willing to bet that your staff members are noticing their wages don’t go as far as they did a few years—or even just months—ago. They want and need pay increases just to stay even with inflation. How do you do that when sales are not increasing and your other costs are rising?
It’s simple. OK, it’s not that simple, but you can make it simpler if you discipline yourself to adjusting your pricing...in small percentages each time and with decimals. If you are not adjusting your pricing for inflation at least annually or semi-annually, you should be. This is where decimals and fractions can help a lot.
Too often, I see owners thinking in “round numbers.” Even if they make a price increase, they tend to do it in whole percentages (2 percent, 3 percent, etc.). But, a few decimals over time can equate to big money when applied to all of a company’s business.
Your estimating system should allow you to make price changes easily. You should do it by extending changes for budgeted hourly rates to 2.xxx percent or 3.xxx percent.
If you are dealing with click charges for digital output, again, extend it to x.xxx. It may not seem like much, but over time, the decimals add up. Your customers will not balk at a few fractions of a percent. When I owned my shop, I would cover inflation by making small changes periodically and, most often, the staff—and especially customers—would not even notice it.
Let’s Combat the Deadly Law of Inflation.
We are most likely going to see more inflation, even if part of it is hidden. If all competitors in the graphic communication market adjusted for it properly, we would all make a lot more money. Think about that the next time you are fighting for a bid.