When Did You Last Review Your Prices? A Simple Annual Pricing Check
When did you last review your prices? Not glance at them, but properly review them against what it now costs you to deliver?
For many owners the honest answer is "a few years ago". Meanwhile salaries have gone up, rent has gone up, software subscriptions have gone up and suppliers have raised their prices. Each increase is small on its own, so it rarely feels urgent. But added together, they quietly eat into your margin. Often it only becomes visible when the year-end numbers arrive and the profit is lower than expected despite a busy year.
Why businesses avoid raising prices
- Fear of losing customers
- Worry about looking greedy
- Not knowing the true cost of what they sell
- Competitors appearing to charge less
- Simply not having a regular moment in the calendar to review
Most of these are about uncertainty rather than evidence. The way to deal with uncertainty is to look at the numbers. Set aside half a day once a year, ideally a couple of months before your financial year starts, and work through the four steps below.
Step 1: Work out the real cost of each product or service
Start with the direct costs: materials, direct labour, shipping, payment fees and any subcontractors. Then add a fair share of overheads such as rent, software, insurance and admin time. Finally, include your own time. Many owners leave their own hours out, which makes services look far more profitable than they are.
For service businesses, the simplest method is to calculate a fully loaded hourly cost for each role: salary plus employer costs plus a share of overheads, divided by realistic billable hours. Then compare that with what you actually charge per hour of work delivered.
Step 2: Compare your margin today with two or three years ago
Look at gross margin by product, service or customer group, and compare it with the same figure from two or three years back. If costs have risen and prices have not, the margin will have fallen. Seeing the actual drop, expressed in money rather than percentages, usually settles the question of whether a review is needed.
Step 3: Find the customers and products that lose money
This step often surprises people. When you look at margin by customer, you frequently find a few clients who generate a lot of work but very little profit. They may be on old rates, receive heavy discounts, demand extra time or pay late. The same applies to products: some lines are popular but barely break even once all costs are included.
Rank customers and products by profit, not revenue. The bottom of that list is where most of your pricing decisions should focus.
Step 4: Raise prices with notice and a clear reason
Once you know what needs to change, communicate it well:
- Give notice. 30 to 60 days is common and fair. It lets customers plan.
- Give a reason. Rising costs are a legitimate reason and most customers understand them. Be brief and honest.
- Be specific. State the new price and the date it applies. Avoid vague language.
- Link it to value where you can. Mention improvements you have made or will make.
- Talk to key customers first. A short call to your most important clients before the letter goes out builds trust.
Smaller, regular increases are generally easier for customers to accept than a large jump after years of no change. An annual review makes this possible.
What about losing customers?
Some customers may leave. That is a real risk and worth planning for. But look at who they are likely to be. Customers who leave over a fair, well-explained increase are often the ones on the oldest rates, the heaviest discounts or the most demanding terms. In other words, frequently the least profitable ones.
It helps to run the numbers. If you raise prices by 10 percent and lose a small share of low-margin customers, your total profit can still rise, and you free up time to serve better customers well. Model a few scenarios before you decide.
Other pricing levers
- Minimum fees or order values for small jobs that cost more to handle than they earn
- Charging for extras that you have been giving away, such as rush delivery or additional revisions
- Tiered packages so customers can choose a level of service rather than negotiating discounts
- Reviewing discounts that were meant to be temporary but became permanent
- Price-review clauses in contracts so annual adjustments are expected, not negotiated
Frequently asked questions
How often should a small business review its prices?
At least once a year, and whenever a major cost such as wages, rent or a key supplier changes significantly.
How much notice should I give customers before a price increase?
30 to 60 days is common. Longer notice suits contract customers or large accounts.
How do I explain a price increase to customers?
Keep it short and honest: state the new price, the date it applies and the reason, usually rising costs. Link it to value where you can.
The bottom line
Your costs change every year. If your prices do not, your margin is shrinking whether you look at it or not. An annual pricing check takes half a day: know your real costs, compare margins over time, find the customers and products that lose money, and raise prices with notice and a clear reason. It is one of the highest-return half days in the business calendar.