Many businesses that feel busy but never get ahead don't have a sales problem. They have a pricing problem. Prices often get set once, by comparing competitors or by gut feel, and then go untouched for years while costs rise.
Start with what each sale really costs
For every product or service, add up the costs that come with each sale: materials, labor, payment processing fees, shipping, and commissions. What's left from the price is your contribution margin, the amount each sale contributes toward rent, salaries, and profit.
Know your break-even
Divide your fixed monthly costs by your average contribution margin per sale. That's how many sales you need each month just to break even. If the number surprises you, your price may be the reason.
The math of discounts
Discounts cost far more than they appear to. Say you sell something for $100 that costs $70, leaving $30. A 10% discount drops the price to $90, and your profit falls from $30 to $20. To earn the same total profit, you now need 50% more sales. Before offering a discount, know how much extra volume it has to bring in.
For service businesses: find your real hourly rate
If you bill by the hour or the project, divide what you actually earned by every hour you worked, including emails, estimates, travel, and admin. That's your effective rate, and it's often far below what you think you charge.
Not every customer is profitable
Look at profit by customer, not just revenue. Some customers demand constant changes, pay late, or need special handling. Raising their prices, changing their terms, or letting them go can increase your profit even as revenue dips.
How to raise prices well
- Give notice. Thirty to sixty days lets customers plan and shows respect.
- Explain the value, not just the increase. What has improved, or what does the customer get that others don't offer?
- Review prices every year. Small regular increases are easier for customers to accept than a large jump after years of no change.
- Test it. Start with new customers or one product line and watch the response.
Pricing affects every number in your business. Reviewing it with your financials in front of you is one of the fastest ways to improve profit without working more hours.
We'd raise prices for new customers first and watch the response before changing anything for existing ones. It's a low-risk way to learn what your work is worth.