Do you feel like you're working harder than ever, yet your profits aren't growing? Maybe you've added new services, hired more staff, or extended your hours…
...but your bottom line stays frustratingly flat.
Many business owners get stuck in this cycle, afraid to make one move that could dramatically improve profitability: raising prices.
Raising your prices can feel like walking into a dark room as a child. Your mind conjures all sorts of scary possibilities: customers leaving, competitors swooping in, your reputation taking a hit. But just like childhood fears, most of what you imagine never actually happens.
In this article, you'll see why smart business owners are able to confidently raise their prices and how you can too, without losing your best customers. We'll also show the surprising math behind how even a small price increase can create significant profit growth.
The Hidden Cost of Underpricing Your Business
Before we talk about raising prices, let's look at what happens when you don't.
Underpricing hurts more than your profits. It hurts your entire business. Charging too little sends a message to the market that your product or service isn't worth much. And this can create a dangerous cycle:
- You attract price-sensitive customers who leave the moment they find something cheaper.
- You can't afford to invest in better equipment, training, or staff.
- You work longer hours for less money, leading to burnout.
- Competitors with healthier margins can afford to offer better service.
At Patrick Accounting, we've seen this pattern hundreds of times: Business owners afraid to raise prices end up trapped in a race to the bottom, competing only on price as margins shrink year after year.
The Math That Will Change How You Think About Pricing
Did you know that raising your prices by just 1% can increase your profit by as much as 10%?
How can a 1% price Increase = 10% profit boost?
Here's an example showing you how:
Before Price Increase:
- Annual Revenue: $1,000,000
- Profit Margin: 10%
- Annual Profit: $100,000
After 1% Price Increase:
- Annual Revenue: $1,010,000
- New Annual Profit: $110,000
- Profit Increase: 10%
That's an extra $10,000 in profit from a modest 1% price increase…assuming your costs stay the same.
Most businesses have two types of costs:
Fixed Costs (don't change with sales volume):
- Rent or mortgage
- Insurance
- Base salaries
- Equipment payments
Variable Costs (change with sales volume):
- Materials
- Commission-based pay
- Shipping costs
When you raise prices, your fixed costs typically stay the same. Only your variable costs increase slightly. This means most of your price increase flows straight to your bottom line.
Now, let's look at an example where the variable costs change with the same 1% price increase:
- Annual Revenue: $1,000,000
- Fixed Costs: $600,000
- Variable Costs: $300,000
- Current Profit: $100,000
After 1% price increase:
- New Revenue: $1,010,000
- Fixed Costs: Still $600,000
- Variable Costs: $303,000 (slightly higher due to increased activity)
- New Profit: $107,000 (7% increase in profit!)
This is why raising prices is one of the fastest ways to grow profits.
Three Reasons Business Owners Fear Raising Prices
Despite the clear financial benefits, most business owners hesitate and resist raising prices. Here are the three biggest fears we hear from owners and why they're usually unfounded:
Fear #1: "I'll lose all my customers."
The Reality: You might lose a few, but probably not the ones you want to keep.
Price-sensitive customers who leave over a reasonable price increase were likely costing you more than they were worth. And they're often the ones who demand the most attention, negotiate the hardest, and refer other price-shoppers. Loyal customers who value your products/services will stay, and you'll have more time and resources to serve them better.
Fear #2: "I don't know where I stand against competitors."
The Reality: Competitor pricing often matters less than you think.
Depending on your industry, competitor pricing might be easy or impossible to find. If you're a restaurant, a quick Google search will reveal most prices. But if you're a service provider, such as a consultant or contractor, pricing is rarely public.
Instead of obsessing over what others charge, focus on:
- The value you provide to customers
- Your costs and desired profit margins
- Customer demand for your service
- Your unique positioning and expertise
Fear #3: "I'll seem too expensive."
The Reality: Higher prices often signal higher quality.
Customers often associate premium prices with better quality, service, expertise, and results. If you've been underpricing, a reasonable increase can actually improve how customers perceive your business.
When Raising Prices Makes Sense for Your Business
Not every business should raise prices immediately, but you should consider doing so if you haven't in the past two to three years.
Here are a few signs that signal it might be time for a price increase:
Your Costs Have Increased
- Employee wages have gone up
- Materials cost more
- Insurance premiums increased
- Rent or lease payments rose
You're Busier Than You Want to Be
High demand is the perfect time to raise prices. If you're turning away work or working excessive hours, raising prices can help balance demand while improving profits.
You Haven't Raised Prices in More Than Two Years
Inflation alone justifies modest annual price increases. If you haven't adjusted pricing recently, you're essentially giving yourself a pay cut every year.
Your Profit Margins Are Too Thin
If unexpected expenses stress your cash flow, your margins probably aren't healthy enough. Strategic pricing increases can provide a buffer for your business.
You're Attracting the Wrong Customers
Low prices usually attract price-shoppers. If you're dealing with difficult clients who demand a lot but pay little, raising your prices can help attract better customers.
Your Next Step: Start Pricing With Confidence
Raising prices doesn’t have to be scary. Once you understand the math and the strategy, you'll see it as a powerful tool to strengthen your business. Customers expect occasional price adjustments. The key is to roll them out thoughtfully while communicating the value you provide.
If you want to build a more profitable, sustainable business that gives you the freedom and security you deserve, strategic price increases are one of the fastest ways to get there.
At Patrick Accounting, we’ve helped hundreds of small business owners like you make smarter financial decisions that drive real profit. And the ones who thrive are the ones who overcome their fears of losing customers and price confidently based on the value they deliver.
Raising prices is one of the smartest moves you can make to build a business that truly rewards your hard work. You deserve to feel confident in the value you provide… and to earn a profit that reflects it.
Want more profit-building strategies?
Check out "How to Increase Profits in Your Small Business," and start creating the profitable, sustainable business you've been dreaming of.
