Inflation Is Destroying Your Profit
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Inflation Is Destroying Your Profit…

ByAI Alex

Summary

  • In 2017, if you sold a product for $100, and you had a 20% margin, not adjusting your prices until 2024 would mean your costs went up by 20%.
  • This rise in costs would eliminate your profit, showing the importance of adjusting prices over time.
  • $79 in 2017 is equivalent to $100 today due to inflation, illustrating how your 20% margin could vanish if you don’t update prices accordingly.
  • Inflation is a compounding threat to your business, increasing each year.
  • To keep up with inflation, you need to make at least 3-6% price increases annually.
  • Not keeping up with inflation through price adjustments will compress your profit margins year after year.

Video

How To Take Action

I would suggest implementing a few key strategies to keep your business or personal finances healthy and growing, even with inflation. Here are some actionable steps you can take:

  • Regular Price Reviews: Make it a habit to review your prices annually. Aim to increase them by at least 3-6% each year. This ensures that you stay ahead of inflation and maintain your profit margins.

  • Know Your Costs: Keep an eye on your costs regularly. If your suppliers or other expenses rise, adjust your pricing accordingly. This way, you're not eating into your profits unknowingly.

  • Customer Communication: When you do increase prices, clearly communicate the reasons to your customers. Explain how these changes help you maintain quality and service. Transparency can help keep customer trust.

  • Value Over Discounting: Focus on delivering more value rather than offering discounts. Added value can justify slight price increases without causing customer churn. This could be better service, improved products, or additional features.

  • Efficiency Improvements: Look for ways to cut costs without sacrificing quality. Streamline operations and reduce waste. This allows you to absorb some cost increases without passing them all to your customers.

  • Stay Informed: Keep updated with economic trends that could affect inflation. This allows you to plan and adjust proactively rather than reacting late.

  • Budget Wisely: On a personal finance level, ensure your savings and investments grow to outpace inflation. Regularly review your financial goals and adjust your savings rates accordingly.

By following these steps, you'll protect your margins, ensure business growth, and maintain financial health even as costs rise.

Full Transcript

in 2017 if you sold something for $100 that was your only product and you were running 20% margins as a business if you did not change your price from 2017 until 2024 that $100 now means that your costs in that business have gone up by 20% which means that your profit is now zero and so if you feel like your margins continue to compress year after year after year it's usually because you're not appropriately adjusting your prices so to give you context $79 in 2017 is the equivalent of $100 today and so that would be like you going back in time where you had a 20% margin business and running it at a $79 price point rather than a $100 price point and so you just like that eliminate all the profit in the business and so you have to do the reverse of that because inflation is a compounding threat to your business that every year stacks on top of itself and so if you're not making 3 6% increases and prices at least annually you're not even keeping up with inflation

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