Pricing for profit: the uncomfortable maths of a £2m business

Here is a quiz I run in Scale Programme workshops. A £2m business runs a 10% net margin — £200,000 of profit. Which moves profit most: 10% more sales volume, 10% lower overheads, or prices 4% higher? Every cohort votes for volume. Every cohort is wrong, and the size of the gap is the point of this article.

The arithmetic nobody enjoys

Take a typical shape for that £2m firm: 60% direct costs, 30% overheads, 10% net. Ten percent more volume brings £200,000 of new revenue carrying £120,000 of new direct cost, plus the quiet extras volume always drags in — overtime, another van, a hire — call it £30,000. Net gain: perhaps £50,000, for 10% more work through the same owner-shaped bottleneck. Cutting overheads 10% saves £60,000, once, and you will feel it in the service. Now price: 4% across the board on £2m is £80,000 — and it arrives with no extra jobs, no extra vans, no extra Tuesdays. Every pound of it lands on the bottom line.

"But we'd lose customers"

Some, possibly. Run the break-even: at those margins, a 4% rise could shed roughly one pound in nine of revenue before you are worse off — and the customers who leave over 4% are disproportionately the ones who pay late, complain loudest and order smallest. In twelve years of retail I raised prices meaningfully four times. The forecast catastrophe arrived zero times. What arrived instead, each time, was a quieter shop making more money — and, once, a competitor who thanked me for giving him permission.

Why owners under-price

Rarely strategy, usually biography. The price list was set when the business was hungry, and "we're good value" calcified into identity. Costs crept — ingredients, wages, insurance — while prices waited for a courage that never quite scheduled itself. And because the owner personally knows the customers, every increase feels like a letter to a friend. This is why pricing is a coaching topic and not just an accounting one: the spreadsheet takes ten minutes; the permission takes the rest of the quarter.

A practical sequence

First, re-cost your ten biggest sellers against this year's costs — in most businesses we audit, at least two lines have quietly gone sub-margin. Fix those immediately; that is not a price rise, it is a correction. Second, segment: new customers get new prices today, existing customers at renewal with notice — the "everyone at midnight" approach is what makes rises feel dangerous. Third, put a date in the diary every January and July to re-run the sums, so pricing becomes maintenance rather than melodrama. And if you cannot bring yourself to do any of it, at least stop running the loyalty discount for the client who last said thank you in 2019.