Business problems/Pricing
“Are we charging enough — and what happens if I put prices up?”
Every owner has this argument with themselves and settles it on instinct. It is not a matter of nerve. It is arithmetic with one uncertain input, and the useful question is not “what will customers do?” but “how wrong can I be and still be better off?”
What you are looking at
A business selling 1,200 units a month at $125, costing $74 each to deliver, with $48,000 of monthly fixed costs. That is $150,000 of sales and an 8.8% margin — an entirely ordinary small business.
Enter your own figures on the left. “Unit” can be a job, a contract, an hour or a product.
How an engagement runs, in five steps.
The business below is constructed so its figures can be shown openly. The sequence, the files requested and the deliverables are exactly what a real engagement involves.
Prices had not moved in three years while costs had. The owner was certain an increase would cost them customers, and had no way to test whether that was true or just nerves.
The price list, job costings, monthly volumes by customer type, and the fixed cost schedule. Four files, one of them a spreadsheet somebody maintained by hand.
What is on this page: the true cost of a unit including overhead, profit at every possible price, the split between what a price rise gains and what lost volume costs, and the four levers ranked.
Everything below this section is that analysis, live. Change any assumption and every figure and conclusion moves with it.
In the example: an 8% rise on two customer segments and none on the third, losing 3% of volume — far less than the 20% they could have afforded — and gained $12,000 a month.
This page is roughly 5% of that engagement — the slice that can be published, because the business is invented. The rest is at the bottom of this page.
What a real engagement hands you
Not a web page. Working documents built on your own figures, in whatever form is easiest to actually use:
- A written findings report — what was found, what it costs, what to do, with every calculation shown
- Charts and tables built for the specific decision, not a standard template
- The underlying schedules, so anyone on your side can check or take over the work
- Interactive versions where a decision has assumptions worth testing yourself
- PDF and Word files you can forward to a bank, a partner or your accountant
- A ranked action plan with an amount, an owner and a date against each item
All of it on your real data, and yours to keep.
Where the profit comes from, and where it goes
Price gain vs. volume lossA price rise pulls in two directions at once: you earn more on every sale, and you make fewer of them. Separating the two is the whole argument — “sales went up” and “this was a good decision” are not the same statement.
Profit at every price
Profit at each price change, holding your sensitivity assumption steady. The curve being flat near the top is the useful part: it means being slightly wrong about the perfect price costs you very little.
The same thing as a table
| Price change | New price | Units | Sales | Gross margin | Profit | vs today |
|---|
Improve each of these by 1%. Which is worth the most?
Monthly profit from a 1% improvement in each lever, at your current numbers.
Before you change a price
The figure that decides everything here is the cost per unit — and most businesses have never established it properly. See how that gets worked out