This morning I needed to purchase a steel brush. In my mind I expected to pay around R20.00 (approximately US$2.5) because this was approximately what I had paid when last I purchased one, approximately 3 years ago. WOW, was I in for a surprise. The same brush today cost me R38.00 (approximately US$5.00).
I was shocked at the increase in the price of the brush but I needed it, so I purchased it. It also got me thinking, about the psychological cost of inflation.
When I was younger I used to purchase Jelly Tots (a soft, sugar coated jelly like candy). When I started purchasing them for myself I remember the price being approximately R1.17 a packet, and as time progressed and the price increased with inflation I remember sticking a psychological limit myself of R5.00. That is, I was prepared to pay up to five rent for packaging thoughts, but could not see the value beyond that.
Take a huge leap forward about 17 years to today when my children would like me to buy the same jelly tots for them, however today the price ranges somewhere between R9.00 and R14.00 a packet. And I have great difficulty seeing the value when I set the psychological limits at R5.00, even it was all those years ago.
I also have this issue in my business, and was wondering, do you have the same issue in your business? Is it possible that because you have been in business for 15 or 20 years you have difficulty charging a price which will make your profit at today’s rates, because you keep on thinking back to the same Rand (or Dollar or Pound or yen – whatever your currency) number that you would be charging for almost the same product when you first started out all those years ago?
When costing, we at SignForce aim to give our clients “fair value”, which we define as a fair price for the quantity that is being supplied. In order to maintain consistent profits – and stay in business – we aim to maintain a percentage margin on all costs and not just look at the Rand (or currency) values of what we are supplying, something we believe too many of our competitors are doing, at the own peril, because something that cost 100 five years ago will most likely cost in the region of 800 to 900 today, and as difficult as that is to justify on one’s mind, the input costs have gone up so drastically that if you focus on currency value instead of margin, you are going to give your goods away at a loss, with a long-term effect of going bust.
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