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How can you account for inflation in your contract pricing strategy?

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Inflation is the general increase in the prices of goods and services over time, which reduces the purchasing power of money. If you are a contractor, freelancer, or consultant, you need to account for inflation in your contract pricing strategy to avoid losing money and maintain your profitability. In this article, you will learn how to do that by following these four steps:

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Mordy Gross

Attorney | Regulatory, Telecom, Compliance, Startups

1 Identify the inflation rate

The first step is to identify the inflation rate in your country, industry, or market. You can use official sources, such as the Consumer Price Index (CPI) or the Producer Price Index (PPI), to measure the average change in prices over a period of time. Alternatively, you can use online calculators, such as the Inflation Calculator, to estimate the inflation rate based on historical data.

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Mordy Gross

Attorney | Regulatory, Telecom, Compliance, Startups
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It's important to recognize that an index can be a broad indicator, and that it's broadness may only be useful over a longer period of time. For example, linking a wage to CPI could be useful to prevent salary erosion due to inflation, but if an outlier month triggers a raise, it may lead to an undesired result.

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2 Adjust your base price

The second step is to adjust your base price according to the inflation rate. Your base price is the amount you charge for your services before adding any fees, taxes, or discounts. To adjust your base price, you can use a simple formula: Adjusted base price = Base price x (1 + Inflation rate) For example, if your base price is $100 and the inflation rate is 2%, your adjusted base price would be $102.

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3 Consider your contract duration

The third step is to consider your contract duration and how often you can review and revise your prices. If you have a short-term contract, such as a one-off project or a monthly retainer, you may not need to worry too much about inflation. However, if you have a long-term contract, such as a multi-year agreement or a fixed-price project, you may want to include a clause that allows you to adjust your prices periodically based on the inflation rate or a specific index. This way, you can protect yourself from unexpected changes in the market conditions and avoid undercharging your clients.

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4 Communicate with your clients

The fourth and final step is to communicate with your clients about your pricing strategy and how you account for inflation. You should explain the reasons and benefits of adjusting your prices, such as maintaining the quality and value of your services, covering your increased costs, and staying competitive in the market. You should also be transparent and fair about how you calculate and apply your price adjustments, and provide clear and timely invoices that show the breakdown of your charges. By doing so, you can build trust and loyalty with your clients and avoid disputes and misunderstandings.

Accounting for inflation in your contract pricing strategy is not only smart, but also necessary if you want to sustain and grow your business. By following these four steps, you can ensure that your prices reflect the current and future market realities and that you get paid what you deserve for your work.

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Mordy Gross

Attorney | Regulatory, Telecom, Compliance, Startups
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Don't bury this somewhere deep in the contract. It will be found and will lead to disputes. Be forthcoming on this and other important pricing clauses .

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5 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?

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How can you account for inflation in your contract pricing strategy?

1

2

3

4

5

1 Identify the inflation rate

2 Adjust your base price

3 Consider your contract duration

4 Communicate with your clients

5 Here’s what else to consider

Contract Negotiation

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How can you account for inflation in your contract pricing strategy?

1

2

3

4

5

1 Identify the inflation rate

2 Adjust your base price

3 Consider your contract duration

4 Communicate with your clients

5 Here’s what else to consider

Contract Negotiation

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