It’s a question as old commerce: When to raise one’s prices?
For large businesses that can afford to absorb occasional cost increases imposed by their suppliers, the answer to the question isn’t necessarily life-or-death.
But for small-business owners, profit margins are their companies’ lifeblood, and if they choose to refrain from raising prices relative to increasing costs, they risk dealing a death blow to their cash flow.
In this informative article from the American Express Open Forum, the author discusses the relationship between the Producer Price Index (PPI) and the Consumer Price Index (CPI), and how that relationship affects retail pricing.
The CPI measures the rate of inflation that affects consumers buying goods and services, while the PPI gauges the change in pricing imposed by manufacturers and other suppliers who sell goods and services to resellers.
From the article: “Since 2008, the general trend has been that the PPI has increased at a rate higher than the increase in the CPI. The bottom line is that business owners have been paying more for inventory without raising prices at the same rate. They are absorbing part or all of these cost increases because they fear consumers would stop buying if they raised prices sufficiently to cover their higher costs.”
So, how does a business owner no the time is right to raise prices? I encourage you to read the Open Forum article in its entirety for helpful guidance.
As always, thanks for reading.
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