Don’t Let Inflation Strangle Your Service Business

service business contract and inflation

When you’re a professional services provider (e.g., copywriter, software developer, website designer, business consultant, etc.), you’ve got a few options for dealing with inflation.

First, you can ignore it exists…which means that every $1,000 you earn may have the same buying power as $850 or less did a year ago. Even if your gross revenues remain the same during a recession, you’ll be struggling because the dollar just isn’t worth as much.

Or you can guesstimate how inflation is going to eat away at your business and quote your services based on the rough estimate and hope at you’re right. Of course, you’ve got to weigh the risk of losing business by overestimating future inflationary costs versus winning new business that becomes unprofitable because your estimate was too low.

In the alternative, you could tie the prices of your services to some inflationary indicator, such as the Consumer Price Index (CPI), and provide for your pricing to change based on this indicator…either by a calculation or through pricing renegotiation at the time a trigger point is hit (e.g., 20% annual inflation calculated over the past 12 months).

You could even include contract provisions that let you walk away if inflation turns a profitable contract into a money-loser because of inflation.

No matter what you decide, it’s important to get it in writing signed by the parties (e.g., a professional services contract).

If you need help with a new services agreement or revising an existing one, it’s probably time to schedule a phone consultation with Business Lawyer Mike Young.

Author Mike Young, Esq.

Mike Young has been practicing business and technology law since 1994 and is an angel investor in startups. He's been an entrepreneur since 1988. To get legal help from Attorney Young, click here now or call 214-546-4247 to schedule a phone consultation.

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