Wherein I Discuss (yawn) Inflation

I’ve been having my hair cut by the same woman for three years or so. She’s been in business for over 30 years. She owns her own salon and rents seats to other stylists. I asked her how much more she charges than her other hairdressers, since she’s the most experienced and the owner. She said she hadn’t raised her rates in years. Her answer stunned me. Kids just out of school in the shopping mall are charging more than she is.  

I recommended she raise her rates. 

I’ve been going to the same aesthetician who has been performing lots of magic on my face for 10 years or so. It was time to purchase another package of sessions. When she told me the price, I reminded her that this was the same price as the last three packages. 

I recommended she raise her rates. 

I had a conversation about materials and labor with a small builder/contractor. Same story. He says he fights for every dollar of margin. He claimed there’s a limit to what people will pay. 

I still recommended he raise his rates. 

While I love bargains, there’s something wrong with this picture. Specifically, these are the small businesspeople who are regularly interviewed by the news about the impact of inflation. And they decry every administration (blaming the administration is nothing new) for increases in the cost of goods and services.  

Then why on earth do they not raise their rates to account for regular inflation?  

I went to the US Inflation Calculator website and did some quick math regarding average inflation from 2000 to 2024. The average, as of August 2024, is 2.55%. The high inflation of 2021and 2022 was more than offset by almost a decade of low inflation.  

These small businesspeople would have been perfectly within their rights to raise their rates by the inflation factor. Over the last 10 years, if they had not raised their rates at all, they each would have left 25.5% on the table. 

That’s crazy.  

You’re not running a charity; you’re running a business. And your clients, for whom you go above and beyond, appreciate the excellent work you do. If someone leaves you because you raised your rates, they would not have been a good referral as they don’t appreciate what you bring to your business beyond price, anyway. 

I’m sorry for the tough love. But I’m not buying it. If you are competing only on price, you are either a commodity or suffering from terribly low self-esteem. Pull up your shorts and raise your rates to where they should be at this time and in this market.  

It is only the recency bias of low inflation that lasted a decade in the 2000s that makes people think our inflation is an aberration. Millennials hadn’t experienced it until 2021, so they never knew anything different. GenX, BoomX and the Boomers remember the 1970s and 80s. 

Inflation is normal. While it’s not unheard of, there has been the occasional year of no inflation. But largely, planning for inflation of 3 to 4% is wise in both a household and a business. When I prepare financial plans, I assume a 3% inflation factor in the cost of living and a 6% inflation factor for healthcare. My clients expect to pay more for goods and services. The Fortune companies are certainly inflating their goods and services. But I still have to coax small businesspeople, who are sabotaging their own livelihoods by failing to inflate their goods and services in line with everyone else, to raise their rates. 

Here's what I know to be true from many years of both studying and executing salesmanship: 

• Excellent work is worth a premium; those who won’t pay won’t appreciate your work, anyway. 

• There is always a market for a specialty; the niche-ier the better. In the final decade of the 20th Century, I heard COBOL programmers were making $350/hour to maintain old spaghetti code. That’s funny if you ask me. 

• If anything, charging too little creates the wrong message for the value of your goods and services. 

I’m in a rare moment of contentedness with my hair and my face, by the way. I’m certainly willing to pay a premium to make that feeling last. You are not an impostor. People can afford to pay you. You are deserving. 

Raise your rates. 

#WeRescueOurselves  

Copyright © Madrina Molly, LLC 2024. All rights reserved.

The information contained herein and shared by Madrina Molly™ constitutes financial education and not investment or financial advice

Sherry Finkel Murphy, CFP®, RICP®, ChFC®, is the Founder and CEO of Madrina Molly, LLC.

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