How to Beat Inflation
Who this article is for:
I am going to be upfront and honest: this article is for people who are in business for themselves or have a side hustle.
If you only work a job, the best thing you can do right now, this instant, today, is start hustling. You need at least one source of income that does not depend on another man writing you a check. There is some helpful advice to get that going here, but keep reading!
What is inflation?
Inflation is defined as a rise in the prices of goods and a decline in the purchasing value of money. Honestly, this definition is trash and knowing it doesn’t help us one bit.
Economists and governments love to make this subject as confusing as possible. They make you read lengthy articles and complicated explanations before they give you the important gem about inflation. They don’t want you to know it, but they also can’t avoid saying it, so they hide it.
The number of ways to achieve inflation is limited only by the imagination, but I’m going to give you the root cause. I will write it in a number of different ways to maximize assimilation:
Inflation is the increase of the supply of money relative to the number of goods available.
It is an abundance of money in ratio to what is there to be purchased.
An inflation occurs when there is more money than there is stuff to spend it on.
Money loses value because there’s too much of it compared to what there is to buy.
Governments and banks work together to relentlessly devalue money through inflation.
They create a lot of money while also taxing businesses out of existence, foreclosing on small businesses, etc.
They create a ton of cheap and easy money AND ALSO cut the supply of goods by punishing the entrepreneur for being productive.
This is probably the subject of a whole other article but you should know and never be ignorant of the forces working against your success.
Inflation is the grift of banks and governments.
How to Beat It
Knowing the root cause of inflation gives us the valuable understanding we need to combat it.
Inflation is an unbalanced ratio between supply of money and supply of goods. To offset it we need to increase our own delivery of goods and services while charging more money.
What not to do:
1. Do not offer sales, coupons or deals:
You may think with prices going up that you should cut yours to get more business.
The problem is you will need to make exponentially more sales just to break even on your discount.
For instance, If you run a 10% discount, you will need to sell 12% more than your average just to break even. If you run a 20% discount, you will need to sell 25% more, and so on.
Example: You offer something for $100 and you usually sell 20 a week to earn $2000. Inflation hits and you have the idea of selling more by offering a deal of 20%. Now you’re selling at $80, so you need to sell 25 items (25% more) just to make your usual $2000. On top of this you will need to sell even more in order to combat inflation’s effect on your pocket.
In an inflation period people don’t want to spend. Psychologically they will see your discount as proof of worthlessness. With prices going up, why did you cut yours? Must not have been worth it in the first place.
Also, if you offer a discount you contribute to the overall inflation because you are allowing more money to exist in ratio to the amount you have to sell. It feeds the monster you want to fight. It’s just not patriotic to offer deals during heavy inflation.
2. Do not immediately and drastically increase your prices:
People don’t want to spend during an inflation. If you raise your rates all at once you will turn people away. You will be falling into the same trap these other businesses and companies fall into. They get frantic, raise their prices and lose sales.
Losing sales means you can’t restock or book appointments, which means you are providing less, which also contributes to the overall inflation.
So in an inflation it is your patriotic duty to OFFER MORE and SELL MORE.
What to do:
Economic judo. Channel the anxiety and use it to your advantage. Instead of letting inflation be a reason for people to not buy from you, turn it into a reason to buy from you immediately.
Here’s the formula:
- Determine the rate of inflation that needs to be offset. It’s about 7.5% now (they say). You’d do well to round this up to 10%.
- Plan a graduated price rise over time that will eventually get your prices adjusted to meet inflation. I recommend gradually building to an 8-10% overall increase.
- Turn that timeline into a series of deadlines for your prospective buyers.
- Launch a new product or service and put it through steps 2 and 3 as well.
For example: Inflation is at 8%. You’re going to combat this and raise your rates by 2% at the end of every week for 5 weeks, or 5% at the end of this month, and then another 5% at the end of the next month.
Next, you go promote that at the end of this month, or next Friday, or whatever, your prices will be going up by 5% because of inflation. So they need to lock in today’s prices now to avoid the increase.
You convince people to buy from you now, schedule with you now, pay you now, because next week (or next month) you’re going to be more expensive.
Then you raise your prices, just as you promised, and you do this all over again. You say in two weeks your prices will be going up again because of inflation. Lock in today’s price!
The new product you launch at a limited time introductory price and raise that too, exactly as above.
Now you’ve not lost money with discounts. Instead, you increased your sales by using the anxiety of prices going up in the future to your advantage.
You have also not turned away people who want what you’re selling by suddenly raising the prices on them. You’ve instead encouraged them to buy from you on a more immediate basis and save money thereby.
On top of that, you have also launched a new product or service that can attract more sales. This fights back against the “more money than available goods” situation that lies at the root of inflation.
Pressure is the heart and soul of sales. So use the pressure of inflation to increase your sales while you gradually raise your prices against a series of announced deadlines.
Sell more and get paid what you’re worth.