How Often Should Your Business Review Its Prices?

Learn how to review your prices with confidence, protect your profit margins and avoid undercharging as your business grows.

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.

Regular financial reporting and cashflow analysis can help show whether higher turnover is genuinely producing stronger financial performance.

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.

The objective should not necessarily be to complete the largest possible number of jobs.

It should be to generate an appropriate return from the capacity available.

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.

Accurate bookkeeping makes it easier to understand what the business is actually spending and how those costs are changing.

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.

If turnover is increasing but gross margin is falling, the company may be doing more work without receiving an appropriate return.

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.

Looking at sales alone does not provide enough information.

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.

The important point is to make the review part of the normal business calendar rather than waiting until margins have already deteriorated.

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 financial 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.

It may also identify services the business should consider reducing or stopping altogether.

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.

A £10,000 customer who is easy to service may be more profitable than a £15,000 customer who consumes substantially more staff time and administration.

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.

Competitor information can provide context, but it should not replace your own financial analysis.

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.

It does not mean ignoring costs.

The business still needs to understand the minimum commercial price required to deliver the work profitably.

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.

The right model depends on the service and the customer relationship.

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.

They can also make it easier for the business to standardise delivery and understand the profitability of each service level.

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.

Keeping a customer indefinitely at an uneconomic price is rarely a sustainable long-term strategy.

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.

The larger the increase, the more important clear communication generally becomes.

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.

Customers may not welcome every increase, but clear communication is usually better than avoiding the issue until a large adjustment becomes unavoidable.

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.

Customer numbers should therefore be considered alongside revenue, profit and workload.

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.

The real calculation should also consider the cost of servicing those customers and whether the released capacity can be used elsewhere.

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.

A discount that wins additional work but removes most of the margin may increase turnover without improving the business.

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.

This can become particularly difficult where customers have remained on introductory rates for several years and now consider them the normal price.

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.

The review should not focus solely on whether a few customers complained.

The important question is whether the overall commercial position improved.

Model the change before introducing it

Before increasing prices, it can be useful to model several scenarios.

For example:

• What happens if prices rise by 5%?
• What happens if they rise by 10%?
• What happens if customer numbers fall by 5%?
• How many customers could leave before total revenue falls?
• What happens to gross profit?
• What happens to staff capacity?
• How does the change affect cashflow?

This turns the pricing decision into a financial exercise rather than an emotional one.

Regular management and accounting support can help business owners model different scenarios before making a significant pricing change.

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 can gradually become unprofitable.

Increasing prices without communication

Poor notice can damage customer trust.

Focusing only on turnover

Higher sales do not guarantee higher profit.

Questions to ask during a pricing review

Ask:

• 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?

The answers should give you a much stronger basis for deciding whether current prices remain commercially sustainable.

Frequently Asked Questions

How often should a small business review its prices?

At least annually is a useful starting point, with more frequent reviews where costs or market conditions change quickly.

A review does not necessarily mean prices must increase.

Should prices increase every year?

Not necessarily.

Prices should be reviewed regularly, but an increase depends on costs, margins, demand and the value being provided.

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.

Modelling several scenarios before making the change can help identify an appropriate level.

Will customers leave after a price increase?

Some may.

However, the business may still become more profitable if the remaining customers pay an appropriate price and the company releases capacity previously used on low-margin work.

The financial effect should be modelled rather than judged only by the number of customers lost.

Should existing customers pay the same as new customers?

Not always immediately, but long-standing prices should be reviewed to ensure customers remain profitable.

Large differences between legacy and new-customer pricing should have a clear commercial reason.

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.

However, the appropriate method depends on the service, customer and market.

Should I raise prices if I am fully booked?

Strong demand may indicate that a price increase is commercially appropriate.

If the business is consistently turning away profitable work, reviewing pricing can help determine whether capacity is being used effectively.

Can an accountant help with pricing?

Yes.

Management accounts, margin analysis and customer or service-level profitability information can help identify underpriced work and model the likely effect of potential price changes.

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, margins are tight or the business is growing quickly.

The strongest pricing decisions are based on accurate financial data rather than fear, habit or competitor assumptions.

At Merranti Accounting, we 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.

This article provides general information and should not be treated as personalised accounting, tax or commercial advice. Pricing decisions should reflect the individual costs, market position and objectives of the business.

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Written by Jason Fudge

Jason Fudge is Managing Director at Merranti Accounting.

Jason works closely with business owners on the commercial and financial decisions involved in running and growing a company.

His experience includes business planning, financial management and helping owners use their accounting information to make better commercial decisions. Pricing is a key part of that process because increasing turnover does not necessarily create a stronger business if margins are gradually being eroded.

Jason’s approach focuses on understanding the true cost of delivering a product or service, the value being provided to the customer and the level of profit the business needs to generate to support its future plans.

By reviewing pricing alongside margins, capacity, cashflow and customer profitability, business owners can make changes based on financial evidence rather than simply worrying about how customers might react.

View Jason Fudge on the Merranti team page or connect with Jason on LinkedIn.