The “Other” Deadly Law of Inflation
In my last post, I wrote about The Deadly Law of Attrition. Attrition is customers and/or employees that, if not planned for, can cost you big time. The other law that can be just as deadly is inflation. In recent years, inflation has been relatively low; low enough that it often goes ignored by many business owners. Ignore it long enough and it means peril for your business.
Here’s the most important question: What was the inflation in your cost structure last year and what will it be this year? How much have your rent, utilities, payroll, supplies and delivery costs gone up? Go down each line in your December year-to-date income statement for 2011 vs. 2012 and figure the weighted percentage up or down; generally what we call operating costs and staff costs.
Why do this? So, you know how much you should have increased prices last January just to keep even with inflation. Now, project the same changes for 2012 vs. 2013, and you will know what your price change should be for 2013 to keep up with the Deadly Law of Inflation. I’m willing to bet your costs have not gone down. Even if they are up only a small percentage, a couple of years without changing pricing and your margins get slammed by “the deadly law.” Have the courage to always build inflation into your pricing, or it will eventually put you out of business. It’s happened to many of your competitors.