A Broad Look at Inflation
The price of a Big Mac is 7% higher this year than last year. The National Restaurant Association reported fast food prices have risen 7.2% this year. This is the biggest increase since 1981.
It’s no secret that we are in the middle of a gigantic inflation period. Inflation — and the rising prices that come with it — are currently affecting the United States. According to the USA Bureau of Labor Statistics, annual inflation had a 41-year peak of 8.5% in March. It dropped down to 8.3% in April but is still higher than market expectations of 8.1%.
Inflation Impacts Purchasing Power
This number may seem small, but it has a great effect on employee salaries. Inflation, at this magnitude, changes the price of how much can be purchased over time. Below, we’ll examine how inflation affects salaries, what software employers should keep in mind before adjusting compensation for inflation, and why it’s crucial to consider the increasing cost of living and adapt your pay plan accordingly.
Is Inflation Really the Grim Reaper?
Inflation sends shivers up and down the spines of economists around the world.
It is one of the most critical concepts of macroeconomics. Inflation is the rate at which the general level of prices for goods and services is rising and, consequently, the purchasing power of currency is falling.
Regardless of the context, inflation indicates how much the relevant set of goods and/or services has become more expensive over a specified period, most commonly one year. It can be caused by a rise in production costs, such as raw materials and wages, or by an expansion of the money supply.
Inflation’s Wrecks Financial Havoc
Let’s look at 2022’s price increases.
Energy prices increased by more than 30%. Yikes!
- It’s now about 50% more expensive for you to go anywhere–-even to that beautiful, satisfying job of yours. For my data lovers, gas prices rose 43.6% in March, and April was worse, increasing 48%. Fuel oil jumped enormously to 80.5% and 70.1%, respectively.
- Breakfast, lunch, and dinner are all now about 9.4% more expensive for you and the whole family. Probably for your COVID dog too. We’ve seen the largest food price increase since April 1981.
Inflation can have a major impact on salary levels, economic growth, and living standards. While inflation can benefit some sectors of the economy, it can harm others.
It’s All About Purchasing Power Folks
For instance, inflation can erode the purchasing power of sales professionals’ wages in the software industry, leading to higher living costs.
It can also cause businesses to raise their prices, leading to even higher inflation. Inflation is thus a primary concern for central banks and policymakers around the world.
The kind of inflation we are used to, under 2% per year, is a feature of healthy economic growth. But when inflation is high, employers frequently cut back on raises, perks, and benefits, while workers’ real wages fall.
The Inflation Roller Coaster
The consequence is a vicious cycle of low wages and inflation, which can lead to economic stagnation. Also, as a harmful result of inflation, retirees’ fixed incomes no longer go as far as they once did. Grandma will have to pay more to eat now, and at this pace, she’ll be down to one hotdog a day.
From here, inflation can also destabilize the political system as voters become enraged by the rising cost of living. Therefore, inflation is a problem that both software employers and sales pros should closely monitor.
The Inflation Impact: Business vs. Wages
The economic impact of inflation hits specific industries more than others. Depending on the business, the extent of the damage will vary.
- Erodes the purchasing power of wages and salaries, which reduces the ability of employees to buy goods and services.
- Increases the cost of benefits, such as health insurance and pensions, which raises the cost of doing business.
- Reduces the retention rate and causes labor shortage. As unemployment declines and costs rise, the sensitivity of employees to pay increases. For instance, working parents who cannot afford daycare may decide to leave their job, hence worsening labor shortages.
- Shortages in the supply chain. When demand exceeds supply, firms frequently run out of material or cannot move goods quickly enough to meet demand.
- Increases the raw material cost when suppliers raise prices to ration a limited supply. Sometimes, these cost increases manifest as expedited fees, surcharges, shrinkflation, or contract renegotiation.
- This may lead to higher interest rates, which increase the cost of borrowing and make it more difficult for businesses to scale.
- Creates economic uncertainty, which can lead to slower growth and reduced profits.
Inflation’s Meager Impact on the Software Industry
Fortunately, the software industry is a service-based rather than a raw materials-based business.
And software companies can offer their employees flexible schedules or work-from-home opportunities. Therefore, not all of the above points economically impact the software business. And if you’ve been working “remotely,” congratulations, as you have avoided a notable work expense.
While inflation can adversely affect employers, they should not be too quick to react to rising inflation rates. Instead, they should consider how inflation will affect their business before making any decisions.
Four Factors that Make Inflation 'Slightly' Less Annoying than Lighting Your Money on Fire
On the other hand, when it comes to wages, software employers will increasingly feel the squeeze as inflation rates continue to rise. While sales reps may be understandably concerned about their salaries not keeping up with inflation, there are a few positive ways of looking at it.
#1 -We’re all In the Same Boat
Welcome to the Inflation Club, it’s not exclusive, and the biggest complaint is the monthly fee keeps going up. They say misery loves company, and this would be an example. So yes, we all love it that we’re all impacted! And software sales professionals are not notably worse off than other sectors of the economy.
#2- That Old Debt’s Looking a Little Better
Inflation causes existing debt to become less expensive. Here’s how it works, as prices go up, wages go up, and money is less valuable than it was at the time of the loan. So you should have an easier time paying off that new boat you bought to get through COVID. At the same time, this means any newly acquired debt is more expensive as interest rates are going up!
#3- Believe it or Not, Inflation Spurs Investments in Infrastructure
Now, for the second-best reason, inflation isn’t completely terrible. (Whew, finally, I can take off the rosy glasses for this one.) Inflation can stimulate economic growth by encouraging businesses to invest in new offices, plants, and equipment to keep up with rising expenses and capitalize on increased profits.
These types of investments may result in the development of new jobs. Yates Construction out of Mississippi probably agrees with me, they’re building the new Samsung Plant. My guess is they will be doing some hiring with those 17 big Bs. All that hiring can assist in counteracting long-term salary declines caused by inflation.
#4- Employee Incentives on the Rise
Finally, businesses may be more likely to offer bonuses and other incentives to keep talented employees during periods of high inflation.
Even though inflation may not be optimal for workers, it is not necessarily all negative news. Making your staff’s working environment worse will only lower the retention rate.
While inflation can have some benefits, it’s still important for employers to keep a close eye on inflationary trends. By understanding how inflation affects software sales pros’ salaries, employers can ensure they can attract and retain the best talent, even during periods of high inflation.
5 Strategies Software Companies Can Use to Stay Ahead of Inflation for Sales Talent
Stay ahead of inflation by taking initiative. So let’s jump right into it, shall we?
#1- Stay Proactive
As inflation rates continue to grow, a greater number of workers are facing pressure. It is essential for employers to be proactive to shield their sales teams and the software company itself against inflation’s consequences.
#2- Salary Reviews
One of the best options is to ensure your salaries keep pace with inflation. Many employers are willing to negotiate salaries on an annual basis. However, when inflation is 5-6%, a common consumer spends a complete year with 94-95% of his or her purchasing power from the previous year. And April’s inflation rate in 2022 was 8.3%.
Workers with a lower income may have a more difficult time navigating the financial hurdles of inflation, which should serve as an additional impetus to raise wages as quickly as possible.
Increasing hourly rates, on the other hand, will increase your labor expenses, but these increases are generally manageable. But there’s a drawback because wage hikes for highly compensated employees can be more challenging. Increasing compensation for higher-income personnel locks employers into that salary for the foreseeable future, which, when extrapolated across the organization, can place considerable pressure on your budget.
The number of wage increases will depend on many factors. Consider the following tips when changing your employee remuneration strategy for inflation.
#3- Evaluate Your Budget
The first step in increasing employees’ salaries is determining how much money you can allocate to increased labor costs.
Then, whether you cut back on spending to spare some assets or increase the price of your production, make sure you choose the most profitable way for your staff and business.
#4- Check Competitor Compensation Rates
Top talent is always in demand, no matter the industry.
To propose a competitive wage, software companies should regularly conduct competitive research. Using Salary.com or Glassdoor’s Salary Index, for example, you can check how your competitors boost wages during this period of rising inflation. Talk to people in the job market, and find out what they are hearing about compensation. This data will allow you to adapt your compensation plans accordingly.
#5- Regular Inflation Projections and Forecasts
Certainly, forecasting the future can’t be 100% exact.
But considering economic and trade studies may make the task much easier. For instance, if the Congressional Budget Office anticipates that inflation will return to more manageable levels by the end of 2022, SaaS companies may consider awarding incentives instead of wage increases to their sales professionals to hold them over until the economy recovers.
Alternatively, if you believe that inflation is here to stay through 2022 and beyond, you may feel that boosting staff compensation over the long term is the best course of action.
Labor Supply and Demand Outside of Inflation Considerations
Although inflation impacts wages, there are additional dynamics at play.
Salary levels are determined by shifts in the supply and demand for labor, which can be influenced by demographic trends, workforce participation rates, technological advancements, and product development.
Thus, inflation and compensation rates aren’t supposed to be identical.
According to a survey of U.S. businesses, employers plan to increase salaries by 3.4% on average in 2022, although it is less than half the current inflation rate. And in 2001, the inflation rate was 1.9%, although wage increase budgets were about 4%.
Planned Wage Increases 2022
As Rebecca Toman, the Vice President of the Survey Business Unit at Pearl Meyer stated, 99% of survey respondents planned wage increases for their employees in 2022.
“If you don’t have a salary increase program this year, you’re really behind the mark in 2022,” she said. Therefore, if you plan for salary increases immediately, you can budget effectively and keep your software sales pros ahead of the inflation curve. As a result, your organization can keep employees happy, retention rates up, and your business running smoothly.
Looking for Profitable Strategies to Increase Sales Wages?
If you would like to discuss actual and profitable ways to increase your sales professionals’ wages according to the inflation rate in 2022, book a call with my team members or with me at Optimal Sales Search.
We will gladly tell you about the most successful strategies for salary raises in the software industry to ensure your wages remain competitive in this ever-changing market.