Inflation is often present, but in the current economic climate it has taken on additional importance. Naturally, the news media has recognized this and is covering it — and we can debate somewhere else how much of that coverage is justified and how much of it is hype.
The fact is that we are all dealing with higher prices for many goods and services. There is a knock-on effect where price increases in one area lead to higher costs for us in other areas, too.
I don’t know about you, but I seem to have received an unusually high number of emails from web-based subscription services over the past month or so announcing that they would soon be increasing their prices, and inflation is often explicitly cited.
So if it is a real thing and if it is likely to impact your agency (if it hasn’t already) then what should you be doing about it?
First, you should be looking at consistently raising your prices. I’m not talking about one-time price increases because of the current inflation scare. The truth is that many of you are undercharging for your services already. OK, most of you.
It is easiest to charge higher prices for new clients, so start there. (You can find lots of resources on pricing and raising prices throughout the SAGA site.)
Many of you have asked me if you should have automatic price escalators in your contracts — typically a small amount (2-3%) designed to cover the normal cost-of-living increase. My typical answer to this is no because the amount of additional revenue you receive isn’t typically worth the issues it can create with clients.
Instead, you need to be looking at expanding your engagements with existing clients to move to higher-profit work for them and you need to look at swapping out low-profit clients that won’t change to higher-profit clients that better fit your agency vision.
When it comes to inflation, you also need to keep in mind that your clients are experiencing it, too. So while it makes it easier for you to justify higher prices, they’re probably in the same boat as you are as far as looking for ways to control their own costs.
You need to be sensitive to that concern even as you are looking to get more revenue for your own business. That means you need to focus even more heavily on demonstrating the value that you are providing, whether you choose to increase prices or not.
And that brings us to the final point. With high inflation comes a degree of economic uncertainty. That is only magnified by the ongoing pandemic/endemic situation. So you need to be looking at your cost structure to make sure that you are as flexible as possible and able to deal with whatever storms or opportunities may come your way. That means building out your bench of contractors, but also taking a close look at your own expenses to pare things away that aren’t truly necessary. This is rarely a bad idea, but even more useful now.
Finally, make sure that you have solid cash reserves (at least 3 months of your agency’s operating expenses) to give you a cushion. The agencies that I work with who were in that position in March of 2020 fared much better over the course of the year than those who found themselves short of that goal.
What impact are you seeing of inflation on your own agency? What advice would you add to what I have just shared?