March 28, 2022
Inflation & How it Affects our Industry
Inflation is the loss of buying power over time. To be succinct: money will not go as far tomorrow as it does now. It is defined by the annual change of prices for goods and services. In the United States, there are two main inflation measurements.
One measurement is the Consumer Price Index. It measures the cost of things consumers buy out of pocket. The other is the Personal Consumption Expenditures index (PCEPI), which is released more slowly and determines what people use, including things they don’t pay for directly.
Inflation is at its highest level in 40 years! Prices have risen by 7.5% from a year ago, according to the Bureau of Labor Statistics. As you can see in the graph below inflation is skyrocketing. This is due to a multitude of factors: supply chain disruptions, increased demand, production costs, government relief funds, the war between Russia and Ukraine to name a few.
One consequence of inflation is soaring gas prices. High prices at the tank make people think twice about driving and using discretionary income. Process servers are less motivated to drive to a job when it costs more to get there, and profit is less. It makes sense then that a server would charge more for travel expenses. A snowball effect caused by inflation then occurs. If service of process costs more to complete, then attorney service companies must then charge more to maintain their profit margins. Raising prices for services could push clients away, but if prices aren’t raised then layoffs may be the result.
In our industry, it is vital businesses make time to determine actual costs and profits. During inflation annual gauges aren’t accurate. Many companies set their standard costs annually. This makes it difficult to see the true costs of running a business in a changing market. Another common company practice is relying on aggregate profit metrics concerning revenue, costs, and gross margins. This prevents them from seeing the true profit made by each job.
During times of inflation, businesses must sensibly communicate price increases and maintain a confident brand image. Clients are more willing to accept a temporary price increase than a permanent one. They are also more likely to accept cost changes when they are kindly informed of the rationale behind the price hike. Along with price changes maintaining a compassionate brand image will take your business far. These are trying times for everyone, and shadow inflation was around long before blatant inflation smacked Americans in the face. All around people are being forced to adapt to work shortages, short tempers, increased customer service wait times, etc. So please, be kind, monitor your actual profits, and communicate eloquently business changes whenever possible.
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