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JUNE/JULY, 2007
Strategies: Higher and Higher More entrepreneurs are finding they have no choice but to hike prices It's one thing to raise prices because you can. It's another to do it out of necessity, as an increasing number of entrepreneurs are finding. Since December, the National Federaton of Independent Business' index of price changes has been climbing steadily, reaching 18% in April, after a recent low of 8% in December. (The NFIB calculates the figure by subtracting the percent of businesses that are cutting prices from the percentage that are raising them.) NFIB Chief Economist William Dunkelberg attributes the price increases to climbing labor costs. It was a different story a year ago, when even more companies were raising prices, but for very different reasons. The net 26% of companies that were hiking prices last April did so from a position of strength: Annualized gross domestic product growth was above 5% at the time. With business booming, entrepreneurs felt there was ample room to charge more. Now, costs are the issue. According to payroll administrators SurePayroll, hiring was up 1.5% in the first four months of 2007, after a roughly flat year in 2006. Salaries, which have been climbing for 20 months, are up 1.9% in the first four months of this year. That likely reflects both higher minimum wages in some states and competitive bidding for skilled workers, says Kathryn Kobe, senior economist at Washington (D.C.)-based Economic Consulting Services. Among those most in demand: accountants and computer professionals. Labor costs will likely continue to rise, especially with the recent passage of the federal minimum wage bill. Duane Hickerson, co-owner of Relay Gear, a $7 million Columbus (Ohio) company that makes promotional products, hiked prices 5% in January, the company's first price increase in three years. Hickerson says he was forced to do it because compensation for his 25 employees is up between 3% and 7% over the last couple of years. "We'd rather not raise prices," says Hickerson. "But we have to because of compensation increases and the fact that some of our suppliers are raising prices, too." With a sluggish economy—annualized GDP grew just 1.3% in the first quarter—Dunkelberg says that even businesses that feel they have no choice but to raise prices face the risk that customers will push back or look for cheaper alternatives.  By Amy Barrett
BW MALL
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