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EG49: How inflation changes price management

Written by Emanuel Martonca
on May 16, 2022

I suspect some of you are now in a completely unfamiliar situation: doing business in a period of high inflation.

We have had a long time with very low or even no inflation. But we are finding ourselves now having to adapt to yet another disruption to “normal” business times.

Does inflation change the way we do price management?

No, it doesn’t. 

It only makes it even more important.

What is normal, what isn’t

In “normal” times, doing pricing for software services means going through a few steps:

  • Set business objectives
  • Define a strategy for each customer segment
  • Document quality delivered and value created
  • Evaluate the competition
  • Define a rate card: costs as baseline, customer value as main driver for dynamic pricing
  • Calculate the price for each project

The only difference between “normal” times and periods with high inflation is how often you run this process.

In times of inflation you certainly revise your costs more often, maybe once every 3 months instead of once per year.

The business objectives and the strategy might also change more often. Gone are the good days with annual business plans and budgets. You need to adapt faster now.

Competition will make changes more often, so you need to keep a close eye on changes they make.

Can you raise your prices?

If going through the process convinced you that you need to increase prices, here is an 8-steps plan to raise rates for existing customers.

If you can’t or don’t want to raise prices, here are 3 other things you can work on tomorrow:

  1. Make an effort to learn more about the competition. The more data you have about what other companies are charging for similar services and quality, the better your pricing decision will be.
  2. Walk away from low value customers. You know who they are. You know the projects where you are not making much. Sometimes it just makes sense to find a better customer or a more interesting customer segment to serve.
  3. Don’t sign long-term, time and materials contracts without inflation protection.

WHAT THIS MEANS FOR YOU

High inflation is here to stay.

If you ignore it, it will still affect your business in a negative way.

Better to do something about it.

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