Ask a business owner when they last raised prices and you will usually get a pause, then a guess. "A couple of years ago, I think."
Now ask what has happened to their costs since then. Wages, materials, insurance, fuel, software. Nobody has to guess at that one.
This is price drift: your costs rise a little every year, your prices stay where they were, and the difference comes straight out of your profit. Nobody decided to give the business a pay cut. It just happened.
The math most owners have never run
Here is a simple example. The numbers are made up to show how it works.
| Before | After a 3% price increase | |
|---|---|---|
| Annual sales | $3,000,000 | $3,090,000 |
| Costs | $2,760,000 | $2,760,000 |
| Profit | $240,000 | $330,000 |
Sales went up 3%. Profit went up more than a third. That happens because a price increase costs nothing to deliver. Every extra dollar falls to the bottom line.
It works in reverse too. A 3% discount to win a job does not cost you 3% of your profit. In this example it costs you more than a third of it.
"But I will lose customers"
Some, maybe. So run that math as well. In the example above, the company could lose every customer who makes up 3% of its sales and still be ahead, because it is doing less work for more profit.
In practice, the customers who leave over a modest, well-explained increase are usually the ones who were already the hardest to serve and the slowest to pay.
How to raise prices without drama
- Start with new customers. New quotes go out at the new price today. Nobody is comparing it with last year.
- Raise the lowest-margin work first. The jobs you barely make money on should carry the biggest increase.
- Give existing customers notice. A short letter, 30 days ahead, that says costs have risen and prices will change on a specific date. No apology and no long explanation.
- Stop discounting by habit. Decide who is allowed to approve a discount and require a reason every time.
- Put a date in the calendar. Review prices every year, the same month, the way you renew insurance.
The harder question
A blanket increase is a good start, but the real money is in knowing which services and which customers actually make you a profit. Most owners price off an average. Averages hide the work that loses money.
That is what a Profit X-Ray is for. We rebuild your numbers to show margin by customer and by service, so you know exactly where prices need to move.
Not ready for that? Start with the free BOI Snapshot. It will tell you whether pricing is your biggest leak or whether the problem is somewhere else.