Many small companies set their prices when they start and then touch them only in a crisis. Costs creep up: salaries, software subscriptions, rent, subcontractors. The price list stays where it was. Nobody decides to work for less; it just happens, a little every year.
A yearly price review fixes this with a small, regular habit. It needs half a day, a spreadsheet and the person who is allowed to decide. This article gives a routine you can run in one sitting.
Step 1: Fix a date and an owner
Pick a date that repeats: the month after the financial year closes, or the quarter before your busiest season. Put it in the calendar now. A review that is "done when there is time" is not done.
Name one person who decides. In a small company this is usually the owner or the managing director. Others bring numbers and opinions, but one person says yes or no. If two people share the decision, the review ends in a compromise nobody owns.
Step 2: Compare your costs
Start with what it costs you to deliver one unit of work: an hour, a product, a monthly service. Take last year's figures and this year's and put them next to each other:
- People: salaries, employer contributions, holiday and sickness, training.
- Tools: software subscriptions, equipment, licences. Subscriptions often rise without anyone noticing; a quick look at the bank statement helps.
- Suppliers and subcontractors: what they charged last year and what they charge now. If a supplier has raised its price, a short routine to check, negotiate and decide covers that side.
- Overheads: rent, insurance, accounting, marketing.
Divide the total by the units you actually delivered, not the units you hoped to deliver. If your cost per unit rose by 6% and your prices did not move, your margin has already shrunk by about that much. The Bank of England publishes an inflation calculator and the Office for National Statistics publishes price indices; they give a rough benchmark for how much general prices moved, though your own costs matter more.
Step 3: Compare the market
Look at five to ten comparable offers: published price lists, public proposals, what customers tell you competitors charged. You are not trying to copy anyone. You want to know whether you are clearly below, in the middle or above, and whether your quality supports that position.
Be careful with one trap: a competitor's headline price rarely equals what their customers pay. Compare what is included (support, revisions, response time), not just the number.
Step 4: Look at what customers really pay
The list price is not the real price. Pull last year's invoices and calculate, for each main product or service, the average price actually paid. Then look at discounts: how many were given, to whom and why. A clear discount policy often recovers more margin than a price rise, because it stops quiet erosion.
Also check three signals of demand:
- How often customers object to price. If almost nobody does, you may be too cheap. If price objections come in every second conversation, listen to what they say.
- How full your calendar is. A waiting list is the clearest sign that the price is low.
- Which customers cost more than they pay: those who need constant extra work, pay late or ask for custom changes.
Step 5: Decide with a simple rule
Use a rule you can state in one sentence. For example:
- Raise prices when your cost per unit rose, or when you are fully booked for the next two months.
- Hold prices when costs are stable, demand is falling and customers react strongly to price.
- Change the structure rather than the number when only part of the offer is unprofitable, for example by charging separately for rush work.
Then write down the decision: which prices change, by how much, from what date and for whom. A modest rise of a few percent, explained by costs, is usually accepted. A large jump after years of nothing is harder; that is a good reason to review every year.
Step 6: Roll it out
Apply the new prices to new customers and new quotes first. For existing customers, give notice in writing, state the date and give a short reason. A price change announcement shows a structure that works. Check your contracts for notice periods before you send anything.
Consumer-facing businesses should also check that how they display and describe prices follows the rules. GOV.UK has a guide to pricing and marketing law, and the Competition and Markets Authority publishes guidance on fair trading.
Step 7: Keep one page
Save a single page: date, who decided, the three comparisons in a few lines, the decision and the next review date. Next year, you can compare against facts, not memory.
Where AI tools fit in
An assistant can help you tidy invoice data into a table, draft the customer notice or list the points a competitor's price page includes. The decision stays with a person who knows the customers. Do not paste confidential invoices or customer names into a tool that your contract does not allow.
What to do this month
- Put the review date and the decision owner in the calendar.
- Collect last year's and this year's cost per unit of work.
- List five to ten comparable offers and what each includes.
- Calculate the average price actually paid and the discounts given.
- Decide, write the one-page note and plan the customer notice.
This is general guidance for small businesses, not legal or financial advice. Check your contracts and, if needed, ask your accountant.
Sources
- Bank of England, Inflation calculator: a rough benchmark of general price changes over time.
- Office for National Statistics, Inflation and price indices: official consumer and producer price statistics.
- GOV.UK, Pricing: rules on displaying and describing prices.
- GOV.UK, Competition and Markets Authority: guidance on fair trading and competition.