Have you noticed the cost everything lately?

For me, it was really hammered home when I last filled the car up.  For those of you joining me in the ranks of having a diesel, the cost per litre about 12 months ago was circa $0.75, fast forwards to now and you’re struggling to find it for less than $1.60.  That is a huge increase.  Unleaded petrol hasn’t fared much better seeing a prices increases phenomenally over the last 12 months.

“Why?”  We may be asking ourselves.  Well David goes into far more detail in his Marketwatch article this month, but broadly, it’s a combination of increased demand and reduced supply.  As any economist will tell you, when supply goes down and demand goes up, prices increase.  Simple really.

What has caused this?  As nearly all economies world-wide went into various states of lockdown last year, consumption of fuel dropped through the floor.  After all, people were staying at home.  As a result, there was a world-wide glut of oil as production companies were slow to match the reduced demand.  This caused prices to plummet (see the reverse of our comments regarding supply above) and meant the production companies were forced to charge less (and resulted in lower prices at the bowser, great for us consumers, not so great for the production companies).  A situation which understandably, the production companies are not wishing to repeat.  So in order to match the reduced demand, they slowed production.  Now as the world begins to reopen, production remains low causing there to be reduced supply just at the same time as demand is increasing, thus leading to price rises.  Will production increase?  Probably, but when we can’t be sure, there are many factors involved.  In the meantime, higher fuel prices are set to become a fact of life.

What does this mean?  Because as a society we have a heavy reliance on fuel an increase in it’s cost will affect everything we do.  Simply travelling to work will cost more, calling out your plumber or electrician will cost more as they factor in the increased cost for them to come to you, the cost of food increases as it becomes more expensive to move goods around, the cost of building increases as both the cost of materials and labour increase, everything from electricity to accounting fees costs more as businesses grapple with increased costs and the need to keep on top of them to stay profitable.

What does it mean for your business?  As your costs start to increase it means you need to be looking closely at your pricing.  Is what you’re charging realistic given the increase in costs for you to provide your service?  Remember, you didn’t set up a charity when you started a business, you went into it to make money so keeping your prices stagnant is only hurting your hip pocket and delaying those desired-for goals.

Not sure how to go about implementing a price increase and keeping your clients happy?  Talk to us and let us help you keep your goals in sight.

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