Pricing is one of the most important decisions any business makes.
Set prices too low and the company may remain busy without generating enough profit. Set them too high without communicating value properly and customers may begin looking elsewhere.
Despite this, many businesses continue using the same prices for years.
Supplier costs rise. Wages increase. Insurance becomes more expensive. Software subscriptions go up. Yet customer prices remain unchanged because the owner is worried about losing work.
Over time, this can gradually reduce profit margins and create cashflow pressure, even when sales remain strong.
So, how often should your business review its prices?
The short answer
Most businesses should review their pricing at least once a year.
However, businesses operating in fast-changing markets or experiencing rapidly increasing costs may need to review prices quarterly or whenever a significant cost change occurs.
A pricing review does not always mean prices must increase.
It means checking whether your current prices still reflect:
- The cost of delivering the work
- Staff and subcontractor costs
- Business overheads
- Inflation
- Customer demand
- Competitor positioning
- The value provided
- The profit margin required
Pricing should be a deliberate business decision rather than something that remains unchanged by default.
Why regular pricing reviews matter
A small reduction in profit margin can have a major impact over time.
Suppose a business charges £1,000 for a service and generates a £300 gross profit.
If delivery costs increase by £100 but the selling price stays the same, gross profit falls to £200.
The business is still making sales, but the profit generated from each sale has reduced by one-third.
If the company completes 200 similar jobs each year, that £100 difference represents £20,000 of lost gross profit.
This is why pricing should be reviewed before rising costs become a serious problem.
Being busy does not mean your prices are right
Some business owners measure success by how full the diary is.
A fully booked schedule can feel positive, but it may also suggest prices are too low.
Warning signs include:
- Customers accepting quotes immediately
- Demand consistently exceeding capacity
- Staff working excessive hours
- The business turning away work
- Strong sales but weak profit
- Limited cash available despite high turnover
High demand may provide an opportunity to increase prices while maintaining a sustainable workload.
What should be included in your pricing?
Your price should cover more than the direct cost of completing the work.
Depending on the business, pricing may need to include:
- Labour
- Materials
- Subcontractors
- Delivery
- Travel
- Equipment
- Software
- Insurance
- Rent
- Utilities
- Marketing
- Administration
- Management time
- Finance costs
- Tax planning
- Profit
Businesses frequently calculate the direct cost but forget the wider overheads required to operate.
If those costs are not included, the business may be underpricing even when each job appears profitable.
Know your gross profit margin
Gross profit is the amount left after deducting the direct costs of providing a product or service.
For example:
- Selling price: £2,000
- Direct labour and materials: £1,200
- Gross profit: £800
The gross profit margin is 40%.
That £800 still needs to cover the company’s overheads before any net profit remains.
Monitoring gross margin helps identify whether pricing is keeping pace with rising delivery costs.
Know your net profit margin
Net profit is what remains after all business expenses have been deducted.
These may include:
- Salaries
- Rent
- Insurance
- Marketing
- Software
- Accountancy
- Finance costs
- Office expenses
- General administration
A business may have a healthy gross margin but still produce weak net profit because overheads are too high.
Pricing decisions should therefore consider both gross and net profitability.
How often should pricing be reviewed?
There is no single answer for every business.
Annual reviews
An annual review may be suitable where:
- Costs are relatively stable
- Contracts are renewed yearly
- Customers expect annual increases
- The market changes slowly
- The business has predictable overheads
The review should ideally happen before budgets and contracts are finalised for the following year.
Quarterly reviews
Quarterly pricing reviews may be appropriate where:
- Supplier costs change frequently
- Labour costs are rising
- The business operates on thin margins
- Fuel or material prices are volatile
- Demand changes quickly
- The business is growing rapidly
Quarterly reviews do not mean increasing prices every three months. They simply ensure changes are identified early.
Event-based reviews
Pricing should also be reviewed when a major event occurs, such as:
- A supplier increase
- A new employee
- A wage increase
- Moving premises
- New finance agreements
- Insurance renewal
- Changes in tax or regulation
- A major change in demand
- A new service launch
- A shift in customer type
Waiting until the next annual review may be too late if the cost impact is significant.
Review different products and services separately
A single price increase across the entire business may not be appropriate.
Some services may be highly profitable.
Others may be barely covering their costs.
Review each area separately:
- Revenue generated
- Direct costs
- Time required
- Customer demand
- Complexity
- Risk
- Payment speed
- Repeat work
- Profit margin
This can reveal that certain products need a substantial price increase while others can remain unchanged.
Identify your most profitable customers
Not every customer provides the same value.
Two customers may generate the same revenue but require very different levels of support.
One may:
- Pay on time
- Provide clear information
- Require little administration
- Buy repeatedly
- Refer other customers
Another may:
- Pay late
- Request constant changes
- Require extra meetings
- Dispute invoices
- Generate complaints
- Create significant administrative work
Pricing should reflect the real cost of servicing different customers.
Stop pricing based only on competitors
Competitor pricing is useful information, but it should not determine your entire strategy.
You may not know:
- Their costs
- Their profit margin
- Their financial position
- Their service quality
- Their staff structure
- Whether they are profitable
- Whether they are underpricing
Copying a competitor’s price can mean copying their mistakes.
Your pricing should be based primarily on your costs, value and commercial objectives.
Value-based pricing
Cost-based pricing starts with the cost of delivery and adds a profit margin.
Value-based pricing considers what the result is worth to the customer.
For example, a service that saves a customer £50,000 may be worth significantly more than the number of hours required to provide it.
Value-based pricing may be appropriate where the business delivers:
- Significant financial savings
- Specialist expertise
- Reduced risk
- Faster outcomes
- Convenience
- Improved performance
- Access to scarce skills
- A measurable commercial result
This approach requires a strong understanding of the customer’s needs and the value created.
Hourly rates can hide underpricing
Many service businesses charge by the hour.
This can be straightforward, but it may create limitations.
As the business becomes more efficient, it completes work faster. Under an hourly model, improved efficiency can reduce revenue.
Hourly pricing may also fail to reflect:
- Expertise
- Risk
- Responsibility
- Commercial value
- Urgency
- Specialist knowledge
Some businesses may benefit from fixed fees, packages or value-based pricing instead.
Review your minimum charge
Small jobs can appear attractive but may consume disproportionate time.
Every job may involve:
- Initial enquiry
- Quotation
- Scheduling
- Setup
- Travel
- Administration
- Invoicing
- Payment follow-up
A minimum charge can help ensure small jobs remain commercially worthwhile.
Without one, the business may lose money on work that appears profitable when only the delivery time is considered.
Consider introducing pricing packages
Packages can make pricing clearer and reduce direct comparison with competitors.
For example:
- Basic
- Standard
- Premium
Different packages may include varying levels of:
- Support
- Response time
- Features
- Reporting
- Meetings
- Customisation
- Access
- Guarantees
Packages allow customers to choose based on value rather than focusing solely on the cheapest price.
Should you increase prices for existing customers?
Existing customers should not be ignored during pricing reviews.
Many businesses increase prices for new customers while leaving long-standing clients on outdated rates for years.
This can create a large difference between:
- What the service costs to deliver
- What newer customers pay
- What older customers pay
Older customers may still be profitable, but the position should be reviewed.
Increases can be handled carefully through:
- Clear notice
- A reasonable explanation
- Phased increases
- Revised service packages
- Contract renewal discussions
- Additional value
The goal is to protect the relationship while maintaining commercial sustainability.
How much notice should customers receive?
The appropriate notice depends on:
- Contract terms
- Industry expectations
- Customer relationship
- Size of the increase
- Frequency of billing
- Nature of the service
Businesses should review existing agreements before changing prices.
For recurring services, advance notice allows customers to budget and reduces the likelihood of disputes.
How should a price increase be communicated?
The message should be clear and direct.
Explain:
- When the new price begins
- What the new price will be
- Why the review was necessary
- Whether the service is changing
- What action the customer needs to take
- Who they can contact with questions
Avoid over-apologising.
A commercially justified price increase is a normal part of running a sustainable business.
Do not blame everything on inflation
Rising costs may be part of the reason for an increase, but the communication should focus on maintaining quality and continuing to provide value.
Customers are more likely to understand an increase when the business can explain how it supports:
- Reliable service
- Skilled staff
- Better systems
- Faster response times
- Improved quality
- Continued investment
The price should be connected to the value of the service.
What if customers leave?
Some customers may leave after a price increase.
This does not automatically mean the decision was wrong.
The key questions are:
- How many customers left?
- How much revenue was lost?
- How much profit remained?
- Did workload reduce?
- Was capacity released for better work?
- Did the average customer value increase?
A business may lose a small number of low-margin customers while becoming more profitable overall.
A simple pricing example
Assume a company has 100 customers paying £200 per month.
Monthly revenue is:
100 × £200 = £20,000
If prices increase by 10%, the new monthly price becomes £220.
If five customers leave:
95 × £220 = £20,900
The business has:
- Fewer customers
- £900 more monthly revenue
- Lower workload
- Potentially higher profit
This simplified example shows why customer loss should be assessed financially rather than emotionally.
Review discounts carefully
Discounting can reduce margin quickly.
Before offering a discount, ask:
- What behaviour is being rewarded?
- Is the customer committing to more volume?
- Are they paying earlier?
- Is the contract longer?
- Is delivery more efficient?
- Does the discount still leave enough profit?
Discounts should usually be exchanged for something valuable rather than offered automatically.
Avoid permanent introductory pricing
Introductory prices can help attract new customers, but the terms should be clear.
Specify:
- How long the discount lasts
- The normal price
- When the standard rate begins
- Any minimum commitment
- What is included
Without clear terms, temporary discounts can become permanent underpricing.
Monitor results after changing prices
After a pricing change, review:
- Sales volume
- Conversion rate
- Customer retention
- Revenue
- Gross margin
- Net profit
- Complaints
- Average job value
- Staff capacity
- Cashflow
This helps determine whether the pricing change produced the expected result.
Common pricing mistakes
Never reviewing prices
Costs rise while customer prices remain unchanged.
Copying competitors
The business ignores its own costs and value.
Charging only for delivery time
Administration, travel and overheads are forgotten.
Underpricing to win every job
Revenue increases while profit remains weak.
Offering discounts too quickly
Customers learn to negotiate every price.
Keeping legacy customers on old rates
Long-standing customers become unprofitable.
Increasing prices without communication
Poor notice damages trust.
Focusing only on turnover
Higher sales do not guarantee higher profit.
Questions to ask during a pricing review
- What does each service cost to deliver?
- What gross margin does each service generate?
- Which customers are most profitable?
- Which customers require the most support?
- Have wages increased?
- Have supplier prices changed?
- Have overheads increased?
- Has the service improved?
- Is demand greater than capacity?
- Are competitors positioned differently?
- What value does the customer receive?
- Are discounts commercially justified?
- When were prices last increased?
- What would happen if prices rose by 5%, 10% or 15%?
- How many customers could leave before the increase became unprofitable?
Frequently asked questions
How often should a small business review its prices?
At least annually, with more frequent reviews where costs or market conditions change quickly.
Should prices increase every year?
Not necessarily. Prices should be reviewed every year, but an increase depends on costs, margins, demand and value.
How much should prices increase?
There is no universal percentage. The increase should reflect the gap between the current price and the commercially sustainable price.
Will customers leave after a price increase?
Some may, but the business may still become more profitable. The financial effect should be modelled.
Should existing customers pay the same as new customers?
Not always immediately, but long-standing prices should be reviewed to ensure customers remain profitable.
Is value-based pricing better than hourly pricing?
It can be where the value of the outcome is greater than the time required to provide it.
Should I raise prices if I am fully booked?
Strong demand may indicate that an increase is commercially appropriate.
Can an accountant help with pricing?
Yes. Management accounts and service-level profitability analysis can help identify underpriced work.
Final thoughts
Pricing should not be set once and forgotten.
Businesses should review prices regularly to ensure they continue to cover:
- Direct costs
- Overheads
- Investment
- Risk
- The required profit margin
For many businesses, an annual review is the minimum. More frequent reviews may be necessary where costs change rapidly or margins are tight.
The strongest pricing decisions are based on accurate financial data rather than fear, habit or competitor assumptions.
Merranti Accounting can help business owners review margins, understand the true cost of delivering each service and model the financial effect of potential price changes before they are introduced.
Written by Steve Watts
