Is your pricing keeping up?
Your costs have moved since you set this price; the price probably hasn't. See what it would take today to keep pace with inflation and hit the margin you want.
The math
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How the pricing and inflation works
A price keeps up when it clears two floors: your old price adjusted for inflation since you set it, and your cost per sale divided by one minus your target margin. Take the higher of the two.
How do I know if my prices are too low?
Two signals matter more than how the price feels. The first is cost: work out what one sale costs you in materials, labor and fees, then look at what share of the price is left over. If that share is below the gross margin you need to cover rent, admin and your own pay, the price is too low no matter how busy you are. The second is time, because a price set three or four years ago is being paid with today's dollars, which buy less than they did. Being fully booked at a price that leaves nothing is a pricing problem wearing a demand problem's clothes.
How much should I raise my price to keep up with inflation?
Keeping up means multiplying the old price by the change in consumer prices between the year you set it and today. That restores the value you originally agreed to; it is not a raise. If your own costs have risen faster than general prices, which you can check by comparing a supplier invoice and a wage rate from that year against today, inflation alone will undershoot what you need. That is why this page also shows the price your direct costs and target margin call for. Use the larger of the two numbers as your floor, then decide how far above it you want to sit.
How do I raise prices without losing customers?
Give notice, be specific, and change one thing at a time. Tell existing customers the new price and the date it starts four to six weeks ahead, in writing, so no one meets it first on an invoice. You don't owe anyone a breakdown of your cost structure; one plain line saying this is the first adjustment since a given year does more work than an apology. If you want a read on resistance, apply the new price to new quotes before you touch your current book. Expect a few people to leave, and compare what they were paying against the margin the increase adds across everyone who stays.
Questions people ask
What counts as a direct cost per sale?
Anything that happens only because you made that sale: materials, subcontractor pay, card or processing fees, delivery, and the hours worked on that specific job. Costs you would still pay with an empty schedule, such as rent, insurance, software and your own salary, are fixed costs and belong elsewhere. Mixing the two in this field makes your margin look worse than it is.
Is gross margin the same as profit?
No. Gross margin is what's left of a sale after its direct costs, before rent, insurance, software, loan payments and your own pay come out. A healthy gross margin can still end the month in a loss if fixed costs eat the remainder, which is why it helps to run a breakeven check alongside this one.
Which inflation figure does this use?
It uses the general change in U.S. consumer prices between the year you entered and today, which is the broad measure of how much less a dollar buys. Your own input costs may have moved faster or slower than that. Read the inflation-adjusted price as a reference point to compare against, not as a forecast.
Does raising the price always raise profit?
Only if you keep enough of the work. An increase adds margin on every sale you keep and removes the entire contribution of every sale you lose, so the arithmetic turns on how many customers stay. Run the new price through a breakeven check to see how many sales you could afford to lose before you are worse off than you are now.
Other free tools
Breakeven
Find how many sales a month cover every bill, and how far sales can fall before you are losing money.
Gross margin by product
List up to five products or services to see your blended gross margin and where the profit really comes from.
Customer lifetime value
See what a customer is worth over the whole relationship, and whether what you spend to win one makes sense.
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