[00:00:00] This is Sales Globe Signals and I'm Mark Danullo.
[00:00:05] Why is inflation a big deal for your customers and what should you do for them?
[00:00:11] In Sales Globe Signals, we ask two questions. What are the market signals and what does this mean for profitable revenue growth?
[00:00:20] Here's what you need to know.
[00:00:22] In the past four years 2020 to 2024, consumers and companies have absorbed about 45% of the prior 20 year inflation rate from 2000 to 2020 and about 20% of the time cumulative inflation may be impacting certain customer segments more than others with a loss in real household income.
[00:00:45] The percent of companies across industries reporting a decrease in sales and margins is greater than those reporting an increase which is worse than prior year but improving from prior month.
[00:00:57] Unit cost increases have stabilized despite looming tariffs and have slowed slightly from prior year inflation slowing, but its grip is still tight.
[00:01:09] More to the market signals, Inflation is up in May from April at 2.4% but below the 2.5% expectation and down compared to 3.3% a year earlier. According to the US Consumer Price Index.
[00:01:25] Core inflation excluding food and energy, held at 2.8% versus expectations of an increase to 2.9%.
[00:01:34] The pressure on prices continues, although lower than the past 12 months, and anticipation of tariff impacts is still looming.
[00:01:42] While we tend to focus on near term inflation, zooming out for a bigger picture reveals why inflation has become such an issue and what that might mean for commercial revenue growth since 2000. Over a period of two decades through 2020, inflation wasn't a top of mind concern for most people.
[00:02:00] The US had an average annual CPI increase of about 2.1%, so its impact on customers and purchasing power was nominal.
[00:02:09] But of course that 2.1% adds up through the magic of annual compounding.
[00:02:14] So let's look at the total impact from the year 2000 through 2020. The cumulative inflation rate was 50.3%, meaning that if you purchased something for $100 in 2000, that same item would have cost you $153 in 202020 years later.
[00:02:33] But by comparison, from 2020 through 2024, the cumulative inflation rate was 22.6%, meaning that if you purchase something for $100 in 2020, the the same item would have cost you $122 in 2024 just four years later. So the US has absorbed almost half or 45% of the prior 20 year inflation rate in just the past four years.
[00:03:01] Comparing that level of inflation to actual household purchasing power, median US household income for the 2000-2020 period rose by 63.6%, giving households an inflation adjusted increase of 15.4%, meaning that households increased their purchasing power over that period.
[00:03:19] But for the 2020-2024 period, household income rose only 21.4%, yielding an inflation adjusted decrease of about negative 1%, reducing purchasing power.
[00:03:33] What does this mean for profitable revenue growth?
[00:03:36] The bigger view on inflation shows us some pressure points on our customers and our organizations.
[00:03:42] If your company provides products or services to businesses, your customers are dealing with the stress of increased input costs due to inflation and the anticipation or realization of tariffs.
[00:03:53] Some of your business customers may be able to increase their top line or find cost savings in other areas to maintain their margins.
[00:04:00] If your customers are consumers, they're likely feeling the stress of costs outpacing income, particularly if they're at household income levels or or fixed incomes that make it difficult to absorb those cost increases.
[00:04:12] Your organization may also be impacted by the gradual tightening effects of inflation.
[00:04:17] Some employee groups may have financial pressure which, if pay packages are no longer market competitive, can lead to an increase in turnover.
[00:04:25] Other employee groups may be able to drive increased performance such as sales, which typically carries a large portion of earnings and performance pay.
[00:04:33] To set your direction, here are some questions you may ask your organization.
[00:04:38] Do we have segments that are impacted by inflation differently and are some less impacted by inflation?
[00:04:45] Should we shift our focus on customer segments to target those less impacted by overall cost increases? For example, if business to business, perhaps businesses that have maintained margins?
[00:04:56] If business to consumer, perhaps consumers with income levels and discretionary income that align with our offers.
[00:05:02] Can we improve our price position to address segments that are most impacted by increasing costs?
[00:05:08] Can we sharpen or improve our value proposition or overall product or offer value relative to our pricing?
[00:05:15] How can we make sure our pay plans are competitive while operating with our labor cost or compensation cost of sales parameters? Have our quotas kept pace with inflation and have we maintained or improved real productivity levels over the past five years, just kept pace or fallen behind?
[00:05:32] How can we set attainable revenue and profit goals for performance pay that align to the overall business goals?
[00:05:39] Sales and profit trending down but stabilizing?
[00:05:43] What are the market signals for companies across industries? Sales levels have stabilized versus prior month but are still down about 30% year over year on the diffusion index of net percent of companies reporting the increase or decrease in sales from prior month.
[00:05:59] This is according to the Federal Reserve's Six District Business Inflation Expectations Panel, of which SalesGlobe is a contributing member.
[00:06:06] Profit margins follow a similar pattern of being down from one year ago, but more so at about a 36% decrease on the diffusion index.
[00:06:14] However, during the same period unit costs have not grown at the same rate but have decreased about 13% from prior year.
[00:06:22] So, contrary to what we might expect, the cost does not appear to be a contributing factor to the larger portion of companies recording decreases in sales and margins than increases.
[00:06:31] What does this mean for profitable revenue growth?
[00:06:34] This downward trend in sales and margins over the past year with a less significant trend in unit cost growth may indicate that your customers sales and margins are impacted by pricing pressure which is decreasing revenue growth or eroding margins.
[00:06:47] If they have a significant portion of their revenue from major accounts or deal with strong arm procurement organizations, your customers might be increasing their discounts to those customers customers to protect or retain their business.
[00:06:59] Your customers may also be shifting product mix to lower margin products to counter their customers inflation driven pressures finally, your customers may be dealing with higher overhead SGA or distribution costs, again potentially driven by inflation or tariffs.
[00:07:15] From the perspective of your organization, you may think about how your strategy, offers and go to market approach with your sales organization can address your customers challenges.
[00:07:25] These will of course vary by industry and customer type.
[00:07:29] To set your direction, here are some questions you may ask your organization.
[00:07:34] What do revenue margin and cost trends look like for each of our target customer segments?
[00:07:39] How can we heat map those segments to find the healthiest areas for growth potential or areas with the greatest needs we can address with our offers?
[00:07:48] Given our products and services? How can we help our customers better serve their end users if they're dealing with pricing or discounting pressures?
[00:07:57] If our customers incorporate our offers in their products and services, how can we work with them to create higher margin, more competitively priced offers for their end users?
[00:08:06] With what we offer now, can we help our customers lower their SG and A or overhead costs?
[00:08:12] Are there services we can offer beyond what we traditionally think of as our core products that would help our customers reduce their costs?
[00:08:19] How can we partner with another organization in an adjacent space to create a better offer for our customers and for our customers to offer to their end users?
[00:08:28] Your call to action look at each of the signals we discussed around inflation, revenue and profit margin trend.
[00:08:36] Next, check out the signals for unit cost, tariff and price pass through expectations that I described in our last issue. Then consider their impact from two perspectives. How will they affect your customers and their ability to grow?
[00:08:49] How will they affect your business?
[00:08:52] Get beyond current state and ask your team where they see the signals projecting ahead and what this means for your organization's profitable growth.
[00:08:58] Consider each of the questions I've asked. Add your own, create a plan and get into action.
[00:09:07] Salesglobe Signals is about seeing a bigger macro view on growth and taking actions that will help you reach your growth aspirations. To learn More about how SalesGlobe can help your business, visit
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