Capitalism 101



no. this photo has NOTHING to do with the post.



Businesses raise prices for their goods and services periodically.

Really, that shouldn't come as a surprise to anyone, especially someone who already owns and operates a business.

But it does. Which always comes as a surprise to me.

Businesses like mine-- a small nail studio-- grocery stores, restaurants, travel agencies, shipping services, and Disneyland. We raise prices periodically for plenty of reasons. Usually to offset the costs of actually staying in business, and sometimes just because we can. Because being in business is about making a profit-- so we'll have money left over to go to Disneyland after all the overhead costs of running our businesses are paid, and the money that the IRS calls "personal adjusted gross income" has been divvied up into personal income taxes, and what's left after that gets doled out to rent or mortgages, utilities, car payments, insurance, vet bills, and braces for the kids.

It doesn't matter what the Economy is doing. Just because you can't afford to go to Disneyland, or even get your kid braces, doesn't mean that Disneyland and the orthodontist don't still have bills to pay. And since you aren't going to Disneyland, that's one-- or usually several, since not many people go to Disneyland alone-- ticket less in revenue that the park gets to apply toward its bills.

If enough people can't afford to go to Disneyland, then Disneyland will raise its prices to compensate for the lost revenue. That way, they can still pay all their bills-- and you're CRAZY if you don't think Disneyland's bills are outrageous!-- and still have enough money left over for Mickey and Minnie's kids' braces.

Ok. Last I checked, Mickey and Minnies didn't have kids-- in fact, I don't even think they're married. And they don't need to save money up for a trip to Disneyland. I think they live there. At the very least, you'd think they'd get in free. But I'm sure that after the bills are paid, Mickey and Minnie have something that they're saving up for.

Now, hopefully it's painfully obvious that I'm using Disneyland as an example. But a lot of people think of major corporate entities such as Disney as being outrageously profitable. They make SO much money! Why do they have to charge so much for their goods and services?

Well, I don't really know how profitable the Disney empire is. You'll have to get ahold of an official Disney spokesperson for that, and you might have to wrestle Mickey himself to get the answers.

I do know several smaller business owners, myself included, that I have a better understanding of.

It doesn't matter how the Economy is doing. It still costs money to run a business. Even in times of economic downturn, our rent continues to go up, electricity and phone rates increase, gas to get to work, shipping rates go up, insurance rates-- you name it, if you need it, it costs money, and it'll cost more money this year than it did last year.

When the Economy is sputtering, things actually get more expensive. Because business slows down. Fewer people go out to eat, fewer people get their nails done, fewer people buy new cars, fewer people travel, fewer people go to Disneyland. Get it?

So if, for example, I need a minimum of 50 clients to keep all my bills paid before it makes more sense to go work at Taco Bell. And when things are good, I might be able to juggle 90 clients, but when things are super tight and I suddenly realize that I only have 48 clients-- OUCH! Then I have to raise prices across the board so that I can make ends meet with those 48 clients.

BUT! When things are good and I'm juggling those 90 clients? Well, there are only so many hours in the week and I can only accomadate so many clients. If I'm already juggling 90 of them and I have to turn down new business, then I need to thin the herd.

The most non-discriminatory way to do this in business is to raise prices and let the customers decide who stays and who moves on.

Believe me, there is an entire industry devoted to doing the math for this situation. But when you do it just right, now I'm juggling 75 clients without a loss of revenue-- while openning space for new business.

This is what UPS does too. And the grocery store. And Taco Bell. And Disneyland.

Which means that prices go up. Always. And you never know why. You never know if it's because they need to stay in the black, or if it's because they're too far in the black.

Yeah. I know, "too far in the black" seems like a crazy statement, but that's business for ya.