How Do You Know If Your Prices Are Too Low?

Your prices are probably too low if the business is consistently busy, customers generally accept your quotes, revenue is growing, yet there is never enough gross profit, cash or capacity left to build the company properly.
That is the simplest answer.
Other warning signs include:
Your team is permanently overloaded.
You keep hiring but profit barely improves.
Customers rarely question your price.
You automatically discount when challenged.
Every unexpected problem destroys the margin on a job.
You cannot comfortably afford the management, systems or equipment the business needs.
Competitors appear able to employ more people, invest more and still operate at similar prices.
You discover that work you thought was profitable becomes mediocre once all of the real delivery costs are included.
And perhaps the biggest one:
You are selling as much as the business can physically deliver, but the financial reward still feels disappointing.
At that point, selling more may not be the answer.
You may need to improve what each sale is worth.
Being busy is not proof your pricing is right
This is one of the most dangerous assumptions in business.
The diary is full.
Customers keep buying.
Sales team is busy.
Order book looks strong.
Therefore:
Pricing must be working.
Not necessarily.
If I offered £20 notes for £15, I would also have strong demand.
Demand only tells you customers are willing to buy at that price.
It does not tell you the price is commercially sensible for you.
Sometimes being extremely busy is evidence that you are cheap
Especially when:
Capacity is permanently full.
Quotes convert unusually easily.
Customers rarely negotiate.
Lead times keep extending.
You are turning work away.
Yet margin remains mediocre.
That combination deserves investigation.
The market may be telling you:
"We would have paid more."
And you keep politely refusing the additional money.
Price is not simply cost plus a bit
Businesses often price like this:
Materials: £1,000.
Labour: £1,000.
Add 20%.
Quote:
£2,400.
Looks sensible.
Except what did the calculation miss?
Employer National Insurance.
Pension.
Holiday.
Training.
Vehicle.
Fuel.
Insurance.
Software.
Management.
Office.
Waste.
Rework.
Warranty risk.
Non-productive labour.
Finance.
Sales time.
Bad debt.
Equipment depreciation.
Owner involvement.
Suddenly that "20% margin" may not exist at all.
First, know the difference between markup and margin
This trips businesses up constantly.
Suppose something costs you:
£100.
You add a 25% markup.
Selling price:
£125.
Profit:
£25.
Your markup is 25%.
But your gross margin is:
£25 ÷ £125 = 20%.
Not 25%.
To achieve a 25% gross margin on £100 of cost, you need to sell at approximately:
£133.33.
Because:
£33.33 ÷ £133.33 ≈ 25%.
Small mathematical misunderstanding.
Potentially enormous commercial consequence when repeated across millions of pounds of sales.
Gross margin deserves serious attention
HMRC's current internal guidance describes gross profit rate as gross profit divided by turnover and notes that businesses may use target gross-profit rates when developing pricing policies. It also makes the obvious but important point that expected gross-profit rates vary according to the conditions of the particular trade.
That last part matters.
There is no universal:
"Every SME should make 40% gross margin."
Nonsense.
A wholesaler and a consultancy can have completely different cost structures.
The right question is:
What gross margin does our business need for this model to work properly?
Start with the economics of your own company, not your competitor
Competitor charges:
£500.
Useful information.
But you do not know:
Their costs.
Their debt.
Their owner's salary.
Their buying power.
Their efficiency.
Their margins.
Whether they are making any money.
They may be pricing brilliantly.
They may also be going bankrupt.
Do not outsource your pricing strategy to somebody else's price list.
Competitor pricing tells you about the market, not your required economics
You should absolutely understand:
What alternatives customers have.
What the market expects.
How your offer compares.
What customers perceive as valuable.
But your minimum commercially viable price still has to begin with your own economics.
Government export guidance makes the same practical point when discussing price negotiations: businesses should establish the minimum price at which they can sell and still make a profit by analysing the costs affecting the product or service, rather than negotiating without understanding their cost base.
Basic.
Frequently ignored.
Build your true cost to serve
Take one representative job.
What does delivering it actually require?
Direct labour
Not merely:
Employee earns £20 an hour.
What does that hour genuinely cost the business?
Salary or wage.
Employer NI.
Pension.
Holiday.
Other employment costs.
From April 2026, the National Living Wage for workers aged 21 and over is £12.71 an hour, while most employers pay Class 1 employer National Insurance at 15% above the relevant secondary threshold.
Those statutory changes alone demonstrate why pricing based on historic labour costs can drift badly out of date.
Materials
Actual cost.
Not what they cost eighteen months ago.
Subcontractors
Including management or coordination burden where meaningful.
Transport
Fuel.
Vehicles.
Delivery.
Equipment
Hire.
Consumables.
Usage.
Depreciation where appropriate.
Rework and waste
Average reality.
Not imaginary perfect delivery.
Sales and mobilisation
What does it cost to win and start the job?
Management
How much project, operational or supervisory capacity does this work consume?
Now the job starts looking different.
Do not price only the perfect version of the job
Your spreadsheet says:
Eight labour hours.
Reality averages:
Ten and a half.
Which number should influence price?
Reality.
Your material allowance says:
£2,000.
Actual average:
£2,180 because of waste and breakage.
Reality.
Pricing based on the perfect job while operating the real one guarantees margin leakage.
Variations in complexity should affect price
Two customers buy apparently the same thing.
Customer A:
Clear brief.
Fast decisions.
Easy access.
Pays on time.
Customer B:
Changes scope.
Requires endless meetings.
Demands bespoke paperwork.
Delays approvals.
Pays 60 days late.
Should they necessarily pay the same?
Perhaps not.
Complexity consumes capacity.
Capacity costs money.
Price the hassle where the hassle is predictable
Not emotionally.
Commercially.
You may charge differently for:
Emergency turnaround.
Out-of-hours work.
Difficult access.
Additional reporting.
Small minimum orders.
High-risk mobilisation.
Extended payment terms.
Bespoke design.
Unusual customer requirements.
Those things create cost or consume scarce capacity.
If you continually give them away, margin suffers.
Risk belongs in price too
Suppose two jobs have identical expected labour and materials.
One carries:
Greater technical risk.
More warranty exposure.
More uncertainty.
Potential rework.
Higher insurance exposure.
Longer payment terms.
It may deserve a different commercial return.
Pricing is not merely reimbursement for expected input.
It should reflect the risk the business accepts.
One of the strongest warning signs is that every little problem wipes out the profit
Job looks profitable.
Then:
Two extra visits.
Customer delay.
Small material increase.
A little rework.
Margin gone.
That suggests the original price contained virtually no tolerance.
A business cannot expect perfect execution forever.
Some variation is normal.
Price needs enough resilience to survive normal business reality.
You should know your gross margin by type of work
Not only overall company margin.
Break it down where useful:
Service.
Customer.
Product.
Project type.
Department.
Contract type.
You may discover:
Service A produces 45%.
Service B produces 18%.
Both contribute similar revenue.
Which one should the business grow?
Much better question.
Revenue mix matters enormously
Suppose the company produces:
£5 million sales.
Looks impressive.
But:
£3 million comes from low-margin work consuming most operating capacity.
The remaining £2 million produces most of the profit.
If you grow the wrong category, revenue rises while profit barely moves.
That is exactly why Article #35 separated revenue from profitability.
Your average margin can also hide terrible jobs
Ten excellent jobs.
Two catastrophic ones.
Overall business survives.
But perhaps those two categories repeatedly destroy value.
Do not let averages conceal patterns.
Job costing should answer what actually happened
After completion:
Quoted revenue.
Actual revenue.
Quoted labour.
Actual labour.
Quoted materials.
Actual materials.
Quoted margin.
Actual margin.
Then ask:
Why?
If you never compare estimate with reality, pricing cannot improve.
Quoting should be a learning system
Every completed job gives you information.
Were labour assumptions right?
Was waste allowance right?
Were supplier prices current?
Did project management take longer?
Did customer complexity cost more?
Feed that knowledge back into future quotes.
Otherwise estimating remains a ritual rather than a management system.
Your costs are moving whether you review your prices or not
As of August 2026, UK manufacturing input prices were 6.1% higher than a year earlier, while factory-gate output prices were up 3.7%. Those figures are economy-wide manufacturing measures and may bear little resemblance to your own input mix, but they demonstrate why historic cost assumptions can become unreliable quickly.
ONS's September 2026 business survey found 29% of trading businesses reported increases in the prices of goods and services they bought in August, while 37% of businesses with ten or more employees cited labour costs as their largest reported challenge affecting turnover.
If your costs moved and your prices did not, margin moved for you.
Labour cost deserves particular attention
Businesses often update salary budgets without updating selling prices.
Employee gets:
Pay rise.
Employer costs rise.
Pension.
Insurance.
Training.
Recruitment cost.
Then the customer still pays 2024 prices.
Where did the increase go?
Your margin.
ONS reported that 38% of businesses with ten or more employees said their staffing costs, including wages, bonuses, NI and pension contributions, had increased during the three months to August 2026.
That does not mean every business should immediately increase prices.
It means labour-intensive businesses should know whether current prices still reflect current labour economics.
Market prices have been moving too
The Bank of England's August 2026 Decision Maker Panel survey of UK businesses reported realised annual own-price growth of 3.7% in the three months to August, with firms expecting 3.8% own-price growth over the following year.
Again, that is economy-wide survey evidence.
Not your pricing instruction.
But it shows that revisiting prices is hardly unusual in the current environment.
Businesses continually adjust prices as costs, demand and expectations change.
Waiting until margin collapses is not a pricing strategy
Schedule review.
Quarterly?
Six-monthly?
Annually?
Depends on:
Cost volatility.
Contract length.
Market.
Margins.
But decide.
Otherwise price increases happen only when somebody suddenly notices:
"We're not making any bloody money."
That is late.
Long-term fixed prices create additional risk
Suppose you agree:
Three-year price.
Costs rise annually.
Without an escalation mechanism, you absorb the increase.
Government business guidance specifically warns companies to consider the timeframe attached to negotiated prices because fixed prices over long periods can leave the seller carrying increases in raw-material or other costs.
Contracts matter.
Review:
Indexation.
Price-review clauses.
Material changes.
Renewal points.
Get legal advice where appropriate.
Another sign your prices may be low: your quote conversion is extraordinarily high
Careful here.
A high conversion rate can simply mean:
Brilliant reputation.
Excellent sales qualification.
Strong proposition.
Repeat customers.
Limited competition.
Do not automatically increase price because conversion is good.
But if you quote almost everything that moves and win:
90%.
while capacity is full and margins are weak?
I would be asking questions.
Price can manage demand
This is underused.
If you have more demand than capacity, you have several choices:
Hire.
Increase efficiency.
Extend lead times.
Decline work.
Or improve price.
Perhaps all four.
Why automatically create additional overhead to satisfy every customer at the existing price?
Scarce capacity should be allocated deliberately.
Your price should reflect the opportunity cost of capacity
Suppose you only have:
1,000 skilled labour hours available next month.
Customer A work generates:
£30 contribution per hour.
Customer B:
£80.
If demand exceeds capacity, continually accepting A may mean rejecting B later.
The true cost of A is not merely its direct cost.
It also consumes scarce capacity.
This is why mature pricing eventually becomes linked to capacity strategy.
Underpricing can create a staffing problem that is actually a pricing problem
Team overloaded.
Owner says:
"We need another employee."
Maybe.
But perhaps you are processing too much low-value work.
Increase price.
Some low-value demand disappears.
Revenue perhaps remains similar.
Margin improves.
Team regains capacity.
No employee required.
That is a much cheaper solution.
Cheap work creates expensive organisations
This is one of the paradoxes.
Low margin requires high volume.
High volume requires:
More employees.
More managers.
More vehicles.
More systems.
More transactions.
More customer service.
More working capital.
More complexity.
Then all that overhead requires even more revenue.
The business becomes enormous just to generate an ordinary profit.
Sometimes a smaller higher-margin business is materially stronger
£8 million revenue.
£300,000 profit.
versus:
£6 million revenue.
£700,000 profit.
Which is better?
Not enough information.
But turnover alone certainly cannot answer it.
Add:
Owner hours.
Cash requirement.
Risk.
Headcount.
Working capital.
Customer concentration.
Now you can judge the quality of the model.
Another sign: you cannot afford the infrastructure the business needs
Revenue:
Strong.
But every investment feels impossible.
You need:
Operations Manager.
Can't afford.
Better software.
Can't afford.
Equipment.
Can't afford.
Training.
Can't afford.
Marketing.
Can't afford.
Owner salary.
Still weak.
Question:
Where is the money going?
If the operating model is reasonably efficient, weak price or margin may be part of the answer.
Profit has to fund the future
Customers are not only paying for:
Today's labour and materials.
Your pricing also needs to support:
Management.
Systems.
Training.
Investment.
Risk.
Working capital.
Replacement equipment.
Future capability.
Otherwise the company can technically survive while never becoming stronger.
Your desired net profit cannot simply be added to every quote
Be careful.
You cannot say:
"We want 15% net margin, therefore add 15%."
Overheads need understanding.
Gross profit has to cover them before net profit exists.
Think:
Revenue.
Minus direct costs.
Equals gross profit.
Gross profit then supports:
Overhead.
Management.
Finance costs.
Other operating expenses.
Eventually:
Profit.
You need enough gross margin across the portfolio for the entire model to work.
Calculate your gross-profit requirement
Start with annual overhead.
Suppose:
£800,000.
Desired operating profit:
£300,000.
Required annual gross profit:
At least £1.1 million, before any other adjustments relevant to your accounts.
Then if expected sales are:
£4 million,
the broad gross-margin requirement implied by that simple model is:
27.5%.
That is far more useful than:
"Our competitors normally add 20%."
Your accountant or FD should help ensure the definitions and assumptions match your accounts.
Then work backwards into pricing
What does each service need to contribute?
Perhaps not equally.
Premium specialist work may carry more.
Commodity work less.
Strategic customer work may have different economics.
But now price exists inside a business model.
Not guesswork.
Do not blindly use industry-average margin
Industry benchmarks can help.
But averages include:
Excellent businesses.
Terrible businesses.
Different regions.
Different customer mixes.
Different service levels.
Different purchasing power.
Use benchmarks as context.
Not permission.
Your company has to produce enough return for your model.
Another warning sign: the owner is effectively unpaid
This is more common than people admit.
Company reports:
£120,000 profit.
Lovely.
Owner works sixty hours a week and takes:
£30,000 salary.
If replacing the owner's actual operational role would cost:
£90,000,
how profitable is the business really?
Some of the apparent profit may be compensation for unpaid or underpaid owner labour.
Normalise owner contribution
Ask:
If somebody else performed everything I currently do, what would the company have to pay?
Then assess profitability after recognising that economic cost.
You do not necessarily need to change the statutory accounts.
This is a management exercise.
It tells you whether customers are paying enough to support a business that can eventually operate without free founder labour.
If your price only works because you personally work evenings for free, your price does not really work
Important.
Project requires:
Ten additional owner hours.
Not costed.
Job makes £800.
Looks profitable.
You effectively donated the ten hours.
That is not scalable.
Owner time is a real input.
Article #51 made the same point from the growth perspective.
Another sign: you instinctively feel relieved when a customer rejects your quote
That tells you something.
Quote goes out.
Customer says:
"Too expensive."
Instead of disappointment:
Thank fuck.
Why?
Because you knew delivery would be horrible.
Price should perhaps have been higher still.
Or the work should not have been quoted at all.
The difficult customer premium should sometimes be real
Again, not:
"I don't like Dave, add 20%."
But complexity should be priced.
If a customer predictably requires:
Four times the management.
Bespoke reporting.
Long terms.
Frequent changes.
More commercial risk.
That customer consumes more of the organisation.
The price should reflect the service actually being delivered.
Another warning sign: one unexpected pay rise creates panic
Labour increases 5%.
Suddenly whole company margin collapses.
That suggests:
Margins were extremely thin.
Or prices were already overdue review.
Or labour assumptions were poor.
Healthy pricing should contain enough commercial resilience that normal movement does not immediately destroy the model.
What about raising prices and losing customers?
Yes.
That can happen.
This is why pricing is a commercial decision.
Not motivational advice.
The question is not:
"Can I increase prices without losing anybody?"
Probably not always.
The better question:
What happens to gross profit if volume falls after the increase?
Do the maths
Suppose:
100 jobs.
£1,000 each.
Revenue:
£100,000.
Variable cost:
£700 each.
Gross profit:
£30,000.
Now raise price 10%:
£1,100.
Suppose volume falls 10%.
90 jobs.
Revenue:
£99,000.
Variable cost:
£63,000.
Gross profit:
£36,000.
Revenue fell slightly.
Gross profit rose 20%.
And you delivered ten fewer jobs.
That can be transformational.
Price increases do not require volume to remain unchanged to work
This is one of the most important calculations.
Owners imagine:
"If I lose even one customer, raising prices failed."
No.
Look at:
Gross profit.
Capacity.
Customer mix.
Total workload.
Cash.
Perhaps losing a little low-quality demand is exactly what the business needs.
Calculate your allowable volume loss
You can work out how much volume you could theoretically lose after a price increase before gross profit becomes worse than before.
The mathematics depends on:
Current selling price.
Variable cost.
Proposed increase.
But doing the calculation removes emotion.
Ask your accountant or finance lead to model it.
Now you know your tolerance.
Different customers can tolerate different price changes
Do not assume:
Blanket 10%.
Perhaps some services are badly underpriced.
Others correct.
Some customers have old legacy pricing.
Others recently reviewed.
Segment.
Pricing should be deliberate.
Legacy customers can quietly become your worst-priced customers
Longstanding relationship.
Same rate for years.
Costs rise.
Price barely moves because:
"They've been with us forever."
Eventually the oldest customer gets the cheapest version of your increasingly expensive business.
Loyalty deserves value.
It does not necessarily require permanently frozen economics.
Use renewal or review points properly
Annual contract renewal?
Pricing review.
New financial year?
Maybe.
Scope expansion?
Review.
Material cost shift?
Review.
Do not allow:
"We've always charged them that."
to become a pricing methodology.
Percentage price increases are not always the best approach
Perhaps £100 service is actually worth £150.
A 5% increase to £105 barely touches the problem.
Start with:
What should this service cost now?
Then decide transition.
Historic price should inform the discussion.
Not imprison it.
Value matters as well as cost
So far, much of this article has discussed economics.
But price is not only cost-plus.
If your work creates enormous value for the customer, your price may reflect part of that value.
Suppose your service saves a client:
£500,000.
Pricing solely as:
Consultant hours × day rate
may materially understate what you provide.
Different markets tolerate different approaches.
But value deserves consideration.
Customers buy outcomes, not your internal effort
You automate a process.
Task that previously took ten hours now takes two.
Should your price fall 80%?
Not necessarily.
Customer wanted the result.
Your efficiency is part of your advantage.
Do not automatically punish yourself financially for becoming better.
Likewise, inefficiency does not justify higher price
Opposite problem.
Job takes your business twenty hours because your systems are terrible.
Competitor does it in eight.
You cannot necessarily charge the customer for your organisational dysfunction.
Improve the process.
Price value and market position intelligently.
Your experience can make delivery faster and more valuable
You solved problem in:
30 minutes.
Customer says:
"That didn't take long."
Correct.
It took thirty minutes plus twenty years.
Professional expertise is not sold purely by stopwatch.
This matters for:
Consultants.
Specialists.
Engineers.
Designers.
Professional services.
The value may lie in knowing exactly what to do.
Price can also signal position
Very low price can influence customer perception.
Not always.
But buyers may associate price with:
Capability.
Risk.
Service level.
Quality.
Particularly where outcomes are difficult to assess before purchase.
Cheap can win work.
It can also attract customers primarily motivated by cheapness.
Then they leave when someone else is cheaper.
Decide which customer you are trying to attract
If your entire proposition is:
Lowest price.
Fine.
Then you need an operating model capable of winning through efficiency and scale.
If your proposition is:
Expertise.
Speed.
Reliability.
Low risk.
High service.
Then pricing should probably support the cost of delivering those things.
There is nothing strategic about premium positioning with bargain-basement economics.
Do not apologise for price before the customer reacts
"This is probably a bit expensive..."
Why would you say that?
You just negotiated against yourself.
Quote clearly.
Explain scope.
Explain value where appropriate.
Then stop talking.
Let the customer respond.
Train salespeople not to discount reflexively
Customer:
"That's expensive."
Salesperson:
"I can take 10% off."
What did we learn?
Price was fictional.
Better:
"Which part are you comparing?"
Or:
"Is the issue total budget, or are you comparing against another specification?"
Understand the objection.
Perhaps scope can change.
Perhaps payment terms.
Perhaps customer genuinely cannot afford it.
Discount is not the only response.
If you discount, trade something
Perhaps:
Lower scope.
Larger volume.
Faster payment.
Longer commitment.
Different delivery window.
Something.
Otherwise the customer receives exactly the same value and learns the original price was negotiable.
Measure discount leakage
Quoted value:
£5 million.
Sold value:
£4.6 million.
£400,000 disappeared.
Why?
Maybe commercially justified.
Maybe salespeople routinely shave prices because they fear rejection.
Track it.
Sales commission can damage pricing
Commission paid only on revenue?
Salesperson may happily discount to close.
Company carries margin consequence.
Consider whether incentives reflect:
Gross profit.
Contribution.
Quality of sale.
Not just top-line revenue.
Again, design depends on the business.
Minimum order values can fix low-value work
Small job:
£150 revenue.
Still requires:
Quote.
Scheduling.
Invoice.
Customer setup.
Travel.
Management.
The administrative cost can destroy the economics.
Perhaps introduce:
Minimum charge.
Call-out.
Minimum order.
Packaging fee where appropriate.
You do not have to accept every commercially inefficient transaction.
Rush work should often cost more
Customer:
"We need it tomorrow."
You rearrange:
Schedule.
Labour.
Delivery.
Manager attention.
Potential overtime.
If urgency creates cost or displaces other work, price should reflect it.
Otherwise your best customers subsidise the ones causing chaos.
Payment terms can affect price too
Customer wants:
90 days.
That has financing value.
Particularly on large contracts.
You may decide the commercial opportunity justifies it.
Fine.
But recognise the term as part of the deal.
Price and payment should not be considered completely separately.
Article #55 showed how longer customer payment periods consume working capital.
A sale is a package of commercial terms
Price.
Volume.
Scope.
Risk.
Lead time.
Warranty.
Payment.
Cancellation.
Service level.
All matter.
Do not obsess about headline price while giving away everything else.
Current price transparency rules matter for consumer-facing businesses
The CMA's current guidance requires businesses selling to consumers to provide clear, complete and accurate total prices upfront, including unavoidable fees, taxes and charges. Hiding mandatory charges until later in the purchase process can breach consumer-protection law.
So if you need higher prices:
Charge higher prices transparently.
Do not create fake cheapness and bolt unavoidable costs on later.
How do you know whether the market will accept a higher price?
Ultimately:
Test.
Not recklessly.
Select:
New enquiries.
One product category.
A customer segment.
Increase.
Measure.
What happens to:
Conversion.
Revenue.
Gross profit.
Capacity.
Customer objections.
Do not argue theoretically forever.
Market evidence beats fear.
New customers are often the easiest place to test
No historical expectation.
Quote current economics.
Observe.
If conversion remains extremely strong:
Interesting.
Potentially test again.
You do not have to immediately reprice every existing customer overnight.
Existing customers deserve deliberate communication
If increasing prices materially:
Explain appropriately.
You do not need an essay apologising for existing.
Be clear:
What is changing?
When?
Why where useful?
What happens next?
Especially with contractual services.
Keep it professional.
Avoid blaming every price increase on "inflation"
Customers have heard that plenty.
Sometimes inflation is real.
But your pricing decision should be based on your economics.
Costs.
Capability.
Value.
Demand.
Investment.
Service level.
Not simply:
"CPI is 3%, therefore we add 3%."
Your own cost structure may have moved 8%.
Or 1%.
Use your numbers.
Price should be reviewed when costs change materially
It should also be reviewed when:
Capacity becomes constrained.
Your capability improves.
Value increases.
Customer mix changes.
Market positioning changes.
Service scope expands.
Risk changes.
Payment terms change.
The business matures.
Pricing is dynamic.
Another strong sign: competitors with similar revenue look materially stronger
Be cautious.
You do not know their full story.
But perhaps they have:
More management.
Better equipment.
Better salaries.
More marketing.
Stronger systems.
Higher profit.
Same apparent volume.
Maybe their pricing is better.
Maybe they are more efficient.
Either way, investigate the productivity gap.
Do not simply conclude:
"They must have lower costs."
Sometimes you are not underpriced. You are inefficient.
This distinction matters enormously.
Your gross margin is poor.
Price increase seems obvious.
But perhaps:
Labour productivity is weak.
Purchasing poor.
Rework high.
Scheduling chaotic.
Too many managers.
Waste excessive.
In that case, customers may already be paying the market rate.
You need operating improvement.
Do not ask customers to fund every inefficiency.
Pricing and productivity should be reviewed together
Ask two questions.
Are customers paying enough?
and:
Are we using that revenue efficiently?
Both matter.
Higher prices can hide inefficiency for a while.
Efficiency can hide underpricing for a while.
A strong business manages both.
Another sign: you are scared of every cost increase
Supplier raises price 4%.
Panic.
Fuel rises.
Panic.
Wage increase.
Panic.
Healthy gross margin creates resilience.
The business should not be indifferent to cost.
But every normal cost change should not threaten viability.
If it does, pricing or operating economics deserve serious attention.
Set a minimum acceptable margin by work type
Not necessarily one number for everything.
For example:
Standard work.
Strategic-volume work.
Highly bespoke work.
Emergency work.
Different thresholds.
Then give quoting teams authority inside those rules.
Below threshold?
Requires approval.
Now margin erosion becomes visible before the sale is accepted.
Do not let "strategic work" become code for permanently bad work
"We make nothing on it, but it's strategic."
For how long?
What strategic outcome?
Gateway to profitable services?
Fills otherwise unused capacity?
Major reference customer?
Fine.
Document the logic.
If the strategy never pays back, it is simply low-margin work wearing a suit.
Track price realisation
List or standard price:
£10,000.
Actual average selling price:
£8,700.
Why?
Discount.
Negotiation.
Scope creep.
Credits.
Price realisation tells you what customers actually pay compared with intended price.
That gap can be extremely valuable.
Scope creep is often hidden discounting
Original price:
£20,000.
Customer gets:
£23,000 worth of work.
But invoice remains:
£20,000.
You gave a 13% discount.
Nobody called it one.
Define scope.
Manage variation.
Charge appropriately.
Free extras become expensive at scale
One extra hour?
No big deal.
Across:
500 jobs?
500 hours.
That might be a substantial employee.
Little freebies become large cost pools when volume grows.
Standardise what is included.
Review which customers generate the most gross profit, not just revenue
Top customer:
£1 million revenue.
Gross profit:
£120,000.
Another:
£500,000 revenue.
Gross profit:
£180,000.
Which one deserves more strategic attention?
Revenue ranking can distort priorities.
Add management effort and working capital for an even better picture
Customer A:
£180,000 gross profit.
Requires huge owner involvement.
Pays 90 days.
Customer B:
£160,000 gross profit.
Runs smoothly.
Pays 20 days.
The second might create more actual value.
This is why pricing eventually connects with Whole-Life Profit too.
Cheap prices can make the owner indispensable
Because low margin means:
Cannot afford managers.
Cannot afford admin.
Cannot afford systems.
Cannot afford training.
Owner fills the gaps.
Now underpricing becomes an owner-dependency problem.
The customer effectively receives owner labour without paying enough to fund the organisation that should eventually replace it.
The owner can therefore be the hidden subsidy
You answer customer calls.
Fix projects.
Write quotes at night.
Resolve mistakes.
No cost assigned.
Price looks profitable.
Remove owner subsidy?
Different story.
This is particularly important when building a business that should eventually run without constant owner intervention.
A simple pricing diagnostic
Take your ten largest customers or work categories.
For each, record:
Revenue.
Direct cost.
Gross profit.
Gross margin %.
Typical management effort.
Payment terms.
Rework.
Discounts.
Scope creep.
Owner involvement.
Then rank by:
Commercial quality.
Not merely revenue.
You will probably learn something.
Then examine the losers
Which work has:
High revenue.
Low margin.
High complexity.
Poor payment.
High owner involvement.
That is your pricing-review shortlist.
Do not start with the easy, profitable customers simply because increasing them is administratively convenient.
Fix the obvious leaks first.
Run three pricing scenarios
For an underpriced category:
Current
Existing price and volume.
Moderate increase
Perhaps 5% or 10%, depending on context.
Estimate realistic volume response.
Stronger reset
Price required for genuinely healthy economics.
Again estimate volume.
Then compare:
Revenue.
Gross profit.
Capacity used.
Cash.
Do not compare only turnover.
Model what happens if you lose customers
This reduces fear enormously.
What if:
10% leave?
20%?
Which customers?
How much capacity returns?
What gross profit remains?
What fixed costs remain?
You need to understand the downside.
Not pretend it cannot happen.
Sometimes losing customers improves the business
Especially low-value ones.
Price increase leads to:
15% fewer jobs.
Same revenue.
Higher gross profit.
Less overtime.
Shorter lead times.
Better service.
Owner gets time back.
That is not failure.
That is business improvement.
Do not use price rises to avoid customer conversations either
There is a cowardly version:
"This customer is a nightmare. Let's triple the price so they leave."
Maybe simply say:
We are not the right supplier anymore.
Pricing should remain commercially defensible.
How often should you review pricing?
At minimum, enough that meaningful cost or market changes do not accumulate invisibly for years.
For some businesses:
Annually.
Others:
Quarterly.
Highly volatile materials:
More often.
Long-term contracts:
At defined review points.
The key is a process.
Not memory.
Give somebody ownership of pricing
Who owns it?
Owner?
Commercial Director?
Sales Director?
Finance?
Shared?
Fine.
But name the person responsible for ensuring:
Costs are current.
Margins are visible.
Price reviews happen.
Discounts are controlled.
Otherwise pricing often stays unchanged because everyone assumes somebody else is watching it.
Your management scorecard should expose pricing problems early
Article #54 becomes useful.
Track:
Gross margin %.
Discount rate.
Average selling price.
Margin by service.
Rework.
Capacity.
Conversion.
Not all necessarily on the owner dashboard.
But enough to see deterioration.
A 30-day pricing reset
Week 1: Establish reality
Review:
Current prices.
Actual costs.
Margins.
Discounting.
Customer terms.
Week 2: Segment
Which products, services and customers are:
Strong.
Borderline.
Poor?
Week 3: Model
What price produces healthy economics?
What happens at different volume levels?
What is the allowable customer loss?
Week 4: Test
Start with:
New business.
Renewals.
Obviously underpriced categories.
Measure:
Conversion.
Margin.
Capacity.
Then adjust.
A 90-day pricing improvement project
Month one:
Clean cost data.
Month two:
Implement revised quoting rules and targeted price changes.
Month three:
Analyse actual behaviour.
Did customers leave?
Did margin improve?
Did salespeople discount?
Did capacity change?
Do not declare victory because prices changed.
Measure the economic result.
What if customers say you are too expensive?
Some will.
Even when you are cheap.
Customer objection does not establish market truth.
Ask:
Compared with what?
Same scope?
Same service?
Same quality?
Same risk?
Same terms?
Then decide.
You do not have to win every customer.
You probably should lose on price occasionally
If every buyer says yes?
Perhaps your qualification is extraordinary.
Perhaps your reputation is extraordinary.
Or perhaps there is money on the table.
Not every prospect should be your customer.
A healthy commercial system can tolerate:
"No thanks."
What if a competitor is genuinely much cheaper?
Then you have choices.
Reduce cost.
Differentiate.
Change scope.
Target another segment.
Accept lower margin if strategically justified.
Or walk away.
Do not automatically copy them.
There is no prize for winning unprofitable work.
What if raising prices feels greedy?
Pricing is not a moral judgement.
The business has obligations.
Employees expect pay.
Suppliers expect payment.
Customers expect quality.
Equipment needs replacing.
Government expects tax.
You need enough financial return to operate sustainably.
A financially weak supplier is not automatically better for its customers because it was cheaper.
Profit pays for resilience
Cash buffer.
Management.
Training.
Innovation.
Mistake recovery.
Future investment.
Without enough profit, every problem becomes existential.
Pricing contributes to resilience.
That does not mean charge whatever you can get away with.
It means charge enough for the business to remain capable of delivering what it promises.
How Evolve approaches suspected underpricing
If an owner says:
"I think we're too cheap."
I want the numbers.
Not:
"My mate says I should put prices up."
Show me:
Gross margin.
By customer.
By service.
Actual job cost.
Conversion.
Capacity.
Discounting.
Payment terms.
Owner involvement.
Then:
Where is margin disappearing?
Perhaps price is wrong.
Perhaps estimating is wrong.
Perhaps execution is poor.
Perhaps customer mix is wrong.
Perhaps scope control is weak.
Perhaps all of them.
Pricing should follow diagnosis.
Sometimes the answer is an immediate price increase
The economics are obviously broken.
Costs moved.
Legacy price never did.
Demand strong.
Capacity full.
Raise it.
Sometimes the answer is not a price increase
Perhaps prices are perfectly reasonable.
But:
Productivity is terrible.
Purchasing is weak.
Rework huge.
Managers ineffective.
Fix those first.
Do not use pricing as camouflage.
And sometimes both need changing
Very common.
Business became inefficient.
At the same time prices failed to keep pace with cost.
Then the recovery plan involves:
Better operations.
And better pricing.
There is no rule that only one thing can be wrong.
Your price should fund the business you actually want to build
This is perhaps the bigger question.
Do you want:
Capable managers?
Good salaries?
Training?
Proper systems?
Modern equipment?
Financial resilience?
Less owner dependency?
Those things cost money.
Your customers ultimately fund the company.
If your prices can only sustain a business where:
Everyone is overloaded.
Systems remain primitive.
Owner works nights.
Investment is delayed.
Then the pricing model may be preserving exactly the company you are trying to escape.
So, how do you know if your prices are too low?
Look for the evidence.
Revenue is healthy but gross margin is weak.
Capacity is permanently full.
Quotes convert extremely easily.
Normal mistakes destroy job profitability.
Costs increased but prices barely moved.
You cannot afford management or investment.
Low-value customers consume disproportionate capacity.
Owner labour quietly subsidises delivery.
Discounting and scope creep continually erode the quoted price.
And the business remains financially disappointing despite enormous activity.
Then calculate.
Understand true cost.
Understand actual gross margin.
Normalise owner labour.
Review customer and service profitability.
Model different prices and realistic volume loss.
Test increases.
Measure the response.
And distinguish underpricing from operational inefficiency before simply adding another percentage to everything.
Because there is nothing clever about having the cheapest price if the company has to work twice as hard to make half the money.
Your customers do not need you to be cheap.
They need you to create enough value to justify what you charge.
And your business needs the price to leave enough behind to become stronger after the work is done.
Something in your business needs to change?
You probably already know more than enough to keep reading about it.
If you want an experienced outside perspective to help you work out what’s really getting in the way — and what to do about it — let’s have a conversation.






