How Do I Know When It’s Time to Raise My Prices?

Quick Answer: It may be time to raise your prices when your costs have gone up, you’re keeping less from each sale, or you’re doing more work for the same fee. A full schedule and prices you haven’t reviewed in years are also reasons to take a closer look. Start with your actual costs and profit, then decide what needs to change.

I despise raising prices. I know how much I hate opening a bill and finding out it has gone up, and I don’t enjoy being the person sending that news to someone else.

But lately, it feels like every subscription renewal and supply order costs more. Software, filing fees, office supplies, postage. Don’t even get me started on postage (insert deep breaths here).

One increase comes along and I think, “Oh, that’s not so bad.” Then there’s another. And another. None seems dramatic on its own, but when I add them together, it’s a different story.

I’ve ended up eating those extra costs more times than I’d like because I hadn’t adjusted my fees or charged for the extra work. Knowing why prices need to go up doesn’t make the decision more comfortable.

If you struggle with that, too, here are a few signs it’s time to review what you charge.

1. Your costs have gone up, but your prices haven’t

Think about what you pay for labor, materials, insurance, software, rent, and supplies. Look at the total change over time, not just the latest bill. Several small increases can quietly take a bigger bite out of each sale.

Here’s a simple example of what happens when you charge $200 for a job and the direct costs rise:

That leaves $25 less per job before paying your other bills. The $55 still has to cover overhead before any of it counts as profit. Raising the price to $225 would restore the original $80 in dollars, but not the same profit percentage. Choosing an increase takes more thought than adding a few dollars and hoping it helps.

2. You’re working harder without earning more

Your calendar is full. Your team is busy. You’re answering messages after dinner. Yet the business doesn’t seem to have much more to show for it.

That is a reason to review your pricing, but it isn’t proof that pricing is the only problem. Extra labor, wasted materials, unpaid invoices, and work that has to be redone can also hurt your results.

Look at which jobs, products, or customers leave enough money after the work is done. A busy week filled with work that barely pays for itself can leave you exhausted and the business short on cash.

More sales won’t fix a price that doesn’t cover the cost of delivering the work.

3. The work has grown, but the fee stayed the same

Maybe a customer started with a small, simple job. Over time, they added requests, needed more help, or expected a faster turnaround. You kept saying yes, and the price never changed.

One little extra may be manageable. Several little extras every week or month become part of your workload, whether you charge for them or not.

Compare what you originally agreed to provide with what you’re providing now. You may need a higher price, a separate charge for extra work, or a clearer limit on what is included.

Before adding another “quick favor,” decide how that work will be priced.

4. You’re consistently booked and turning good work away

A full schedule can be a reason to review prices, especially when customers keep coming back and referring others. You only have so many hours available.

Before you hire someone or extend your hours, ask whether your current prices support the time and care each job requires.

Being booked for one busy season is different from being at capacity month after month. Look for a pattern. Also check whether scheduling problems or slow processes are making you feel busier than the workload requires.

5. You can’t remember your last price review

“That’s what we’ve always charged” is an explanation, but it isn’t much of a pricing plan.

Your experience may have grown. Your service may have improved. The work itself may be more complex. If you’re still using a price you set several years ago, check whether it fits the business today.

We suggest putting a price review on your calendar at least once a year, and sooner when costs or the work change significantly. The point of a review is making the decision on purpose, not raising every price.

How much should you raise your prices

There isn’t one percentage that works for every business. Start with a few common jobs or services and ask:

• What does it actually cost us to deliver this?
• Have we counted all the time involved, including my own?
• What must be left to cover overhead and earn a reasonable profit?
• What does the customer receive for the price?
• Would a higher price still make sense if some customers chose not to continue?

You may find that one service needs a larger increase while another is priced well. Start there instead of assuming everything needs the same adjustment.

Competitor prices can provide context, but you usually can’t see their costs or exactly what they include. Copying a competitor’s price could mean copying a price that doesn’t work for them, either.

Before you pass along a cost, decide whether to keep it

A higher bill can be a reason to review your own spending, too. I recently changed tax software because the old program’s pricing had reached the point where I was losing money on the work it supported.

I’m also looking at our accounting software. We’ve been spread across three programs (technically four, since we’re doing some work in the new software and haven’t converted away from the others yet), and cost is part of the reason for reviewing them. So are efficiency, the companies I want to work with, and the fact that a program I love is going away.

That doesn’t mean switching is always the answer. Moving to a cheaper program takes time and training, and some services are worth keeping because they work so well. The question is whether the benefit still justifies the full cost.

Sometimes I choose an option knowing it won’t save me money. It may make the work easier, help my team, or simply be worth the cost to me. But that doesn’t mean I feel comfortable passing the expense along to clients. Sometimes I decide that a benefit is worth paying for out of what the business already earns. The important part is knowing what I’m choosing to absorb and whether the business can afford it.

Apparently, we have a version of this discussion at home, too. My husband and kids have convinced me we need every streaming service known to man (it feels like) for a different reason. I’m still reviewing that particular expense list, hoping to convince them otherwise.

For your business, decide what you can cut, what you can change, and what you need to keep. Then make sure your prices support the costs that remain.

How to tell customers about a price increase

I think part of the hesitation for small business owners is that we know the people receiving the bill. We know groceries, clothing, and other household expenses are stretching their budgets, too. We don’t want to add to that.

But our employees face those same pressures. Keeping good people and covering the cost of running the business have to be part of our pricing decisions. Caring about our clients doesn’t make those expenses disappear.

Give customers clear advance notice, especially for ongoing services. Check existing agreements before changing a rate, and be specific about the new amount, the effective date, and what is included. It’s something I’m working on at our firm, as well.

A short message is usually enough:

“Thank you for trusting us with [service]. Beginning [date], your price for [service or package] will be [amount]. This adjustment allows us to continue providing the level of care and service you expect. Your service will continue to include [brief description]. Please contact us with any questions before the change takes effect.”

Use a reason that is true for your business. You don’t need to share your entire expense list or apologize for charging a price that supports the work.

Some customers may leave. Take that possibility seriously and work through the numbers before making the change. Keeping every customer at a price that no longer works has a cost, too.

Let your numbers help you decide

You don’t have to wait until you’re overwhelmed or struggling to pay bills to review your prices. Current financial reports can help you spot rising expenses and shrinking profit while you still have time to make thoughtful changes.

At Compton & Company, we help small business owners keep their accounting current and understand what their numbers are telling them. If you’re busy but unsure where the money is going, contact us about our monthly accounting services.

Helping you navigate today and plan for tomorrow.

Frequently Asked Questions

Should I raise every price by the same percentage?

Not necessarily. Start with services or products that take more time or cost more to deliver than their prices allow. An across-the-board increase can leave your least profitable work underpriced while raising prices on work that already earns a healthy return.

How can I tell whether a price increase worked?

Compare more than total sales. Over the next few months, watch the number of jobs or customers, direct costs, and what remains after expenses. Also look at hours worked. Allow for seasonal changes so you don’t mistake a normally busy or slow month for the effect of your new prices.

What if a customer asks to keep the old price?

Decide ahead of time what flexibility you can afford. You might offer a smaller package or a brief transition period with a firm end date. Put any exception in writing. Otherwise, a temporary favor can quietly become the permanent price.

Should I test a new price before changing it for everyone?

For work quoted one job at a time, you can begin using the new price on future quotes and watch the response. Track which quotes are accepted, what customers ask, and whether the jobs earn enough. A few accepted or rejected quotes are useful feedback, but too small a sample to settle the decision.