How to review your business pricing as costs change
A price that worked when you first quoted for a job may no longer reflect the cost of delivering it. Materials, staff time and the scope of the work can all change. A regular pricing review helps you understand where margins are being squeezed and make a considered decision about what to charge.
Understand what it costs to deliver the work
Start with a typical product, service or job. Record the direct costs and the time needed to complete it, including preparation, supervision and follow-up. Use recent information rather than relying on the estimate behind an old quote.
Look for work that is easy to overlook. Repeated revisions, small deliveries and additional customer support can each absorb time without appearing as a separate item on the invoice. Identify whether they are included in the price, charged separately or absorbed by the business.
Then consider overheads such as premises, software and administration. Direct costs help you understand a job’s contribution, but the business also needs to cover the costs of operating as a whole. Keep the distinction clear when discussing margins.
Look beyond the headline price
Compare the price you quote with the amount you actually receive. Discounts, refunds and additional work completed without charge can affect the result. A busy order book can conceal jobs that contribute less than expected.
Your management accounts can help identify changes in margins and costs. Where the records allow it, look at different services or types of work rather than relying only on a business-wide average.
- Check the assumptions used in recent quotes
- Review who can approve discounts and variations
- Compare estimated delivery time with the time actually taken
- Identify jobs that repeatedly need uncharged extra work
- Ask whether the current mix of sales supports your overheads
Use this review to find the reason for a weak margin. A pricing change may help, but an unclear scope, inefficient process or purchasing issue may also need attention.
Consider the customer’s decision
Price is part of a wider offer. Think about what the customer receives, what makes the service useful and which alternatives they may consider. Avoid assuming that a competitor’s headline price includes the same work, support or delivery arrangements.
Before changing prices, review existing agreements and the process for communicating changes. Make the scope and effective date clear, and give the people handling enquiries a consistent explanation. Get appropriate advice where contractual obligations are uncertain.
For new work, a clearer package or a more precise quote may be more useful than a blanket increase. Explain what is included and how additional requests will be agreed. This helps the customer understand the offer and gives your team a workable boundary.
Review the result after making a change
Record the assumptions behind the decision and agree when to revisit them. Look at enquiries, accepted quotes, customer feedback and the margin on completed work. A higher quoted price is only useful if the resulting business supports your objectives.
MBall’s business services include management accounts and wider financial support. Bringing current information into a pricing discussion helps you connect the commercial decision with the costs and capacity of the business.
Keep the review proportionate. Begin with the work where the cost or scope has changed most, and use what you learn to improve future quotes.
If you would like help understanding the figures behind your pricing, send MBall an enquiry using the form alongside this article.
