We all dislike inflation, but we have to deal with it. If you’re like me, you think inflation sucks. The current inflation rate is about 7.9%. Now you might say that’s huge. We haven’t had that inflation in years. Well, yeah, 40 years, but it’s not that we have never had that level of inflation. In fact, just after World War II, back in the mid-1940s, we had inflation rates of around 15%. This is pretty high, almost double what we have now. And again, it impacts all of us. It’s real, we need to adjust and plan for it.
There are two levels, first business and then personal. On a business level, if you’re a business owner or a decision-maker, is inflation impacting your business?
If the average inflation rate is 8%, how will you maintain the same level of profitability when your expenses are increasing at least 8%? You have three options.
1. Increase Price
If you increase the price, you must know that the market can bear that price increase. So you could increase the price, and your sales volume could go down. If you’re going to increase the price, you have to know that your sales volume will stay the same.
2. Increase Volume
If you can sell more at the same price, you’ll have more revenue, and you’ll be able to compensate for some of those increased expenses. But for that to happen, you probably have to take on, at least implement, a good marketing sales and marketing plan or some kind of new promotion. If you grow your expenses to some extent, that’ll help you increase volume At least with that you can maintain sustainable profitability.
3. Decrease Expenses
If you can’t increase the price and you can’t plan for an increased sales volume, then you can begin decreasing expenses in other areas. If your costs increase 8%, there is no change in anything you’ve purchased, but prices rise 8%. You can decrease expenses in an area to compensate. For example, if you bought $1,000 of supplies, now that $1,000 of supplies will cost more like $1,100, rounding off to a 10% increase. You’ve got to find that a $100 somewhere to save. It might be in another supply, or it might be in some other administrative expense. Whatever it is, you’ve got to be able to reduce expenses in another area.
Unfortunately, many times businesses will hit labor. That means that people will get laid off and lose their jobs because companies can’t afford the same amount of labor costs because costs in other areas are going up. They can’t compensate for that from the revenue side, increase in price, or increase in sales volume.
Does inflation impact business?
Yes, it does, and you need to create a plan. It’s crucial now to plan ahead. Inflation is likely to rise even more. That means that we have to plan for either increasing price, knowing that our goods or services that we’re selling can bear that increased price.
We have to increase volume and sell more or decrease expenses. And the problem with decreasing expenses is you have to find the area where you can find the expense to decrease. In other words, if there are supplies in one place, they will cost more. You might have to reduce supply costs in another area.
I encourage looking at price, increasing sales volume, and decreasing expenses in every area, except for labor. Keep those people employed. Your employees are the lifeline of your business. They are what make your business thrive. They’re what make your business successful. Don’t touch labor. Richard Branson said it best employees are the most essential component of your business. It all starts with employees. Be sure to care for those employees and address inflation in other areas.
Your customers come next, then your shareholders or stakeholders. But if your employees aren’t happy, your customers aren’t satisfied. If your customers aren’t happy, you’re not growing your business.
How does inflation impact you personally and your family?
With an 8% inflation rate, this will impact your household expenses. Your household expenses will go up an average of $300-500 a month. So let’s be conservative and say 300, that’s $3,600 a year. If you have the average or median income that we experience in the United States (which is around 70,000 a year), you make $70,000 a year, and inflation is going up to $3,600 a year; that’s over 5% of your total revenue or your total pay.
If you can save regularly 5-10% of your income, you’re making $70,000. That’s 7,000 that you’re put into savings. Now $3,600 of that will increase costs towards filling your gas tank, groceries, clothing, whatever it may be, it will go up by 8- 10% by the end of this year.
If you had a vacation plan that would have cost you about $3,600. Now that $3,600 is not going to be put towards keeping your household consistent, meaning you’re not taking on any new expenses. You’re not increasing any expenses into your home. You’re just staying. Everything you purchased before is the same as last year. And this year, it’s just going to cost you $3,600 more. So you won’t be able to take that vacation, or you’ll have to be able to compensate for it.
You have to save even more. If it costs you $50,000 to run your household, like mortgage insurance, groceries, clothing, and education, it’s all now $3,600 more.
Does inflation impact you?
Yes, it does. And you need to plan for it. Start doing everything you can to decrease your expenses in your household. Try reducing costs by doing the following:
- Look for more favorable insurance rates
- Switch grocery stores to find lower-priced items
- Limit your spending habits on clothes and accessories
Overall, be a bit more prudent and try to impact your household as minimal as possible. Maybe you will have to wait to get that new car or wait a little longer to take that vacation. Whatever it may be, know that inflation is real and won’t be going away any time soon.
Remember, it won’t last forever, and things will get better, but in the meantime, let’s plan accordingly so we can make it through the next year or two.