April 2025

Hi everyone 

 

With the increases in NMW and E’ers NIC that we highlighted last week there will likely be a number of businesses reviewing their pricing – and you shouldn’t be any different! If you are having inflationary increases then you need to consider what your price increases should be for your customers. 

 

Pricing is a real skill and no one gets it 100% right – there are just so many variables (which is why its going to be a topic that we revisit in future Tuesday Tips). But if you’re not losing any jobs on price then you’re probably not charging enough…… 

 

Due to the complexity of pricing we’ve pulled together some examples (which means that it is a bit of a longer post today but please don’t say TLDR – this could be the most important Tip of the year!). 

 

Let’s look at an example of the results for a business for last year: 

 

Sales	£1,000,000
Cost of sales	(£700,000)
Gross Profit	£300,000
GP %	30%
Overheads	(£200,000)
Net profit	£100,000

 

If you have a 5% increase in costs (either inflation / supplier increases / NMW / E’ers NIC etc) then here’s what the profit and loss would look like if you didn’t make any changes 

 

Sales	£1,000,000
Cost of sales	(£735,000)
Gross Profit	£265,000
GP %	26.5%
Overheads	(£210,000)
Net profit	£55,000

 

A 5% increase in costs but a 45% decrease in profits (£100k down to £55k). 

 

So how can we combat this? Here are 3 broad plans to impact profitability: 

 

• Increase the number of customers / the number of sales 

• Increase your prices 

• Cut costs / make efficiencies? 

 

Let’s see what is required to get back to £100k profit if we reverse engineer these 

 

• Increase the number of customers / the number of sales  

• With increased overheads we need to generate £310,000 of gross profit to get £100k net profit 

• And with a 26.5% margin that means we need to do £1,169,811 of sales to achieve a gross profit of £310,000 

• An increase in sales of almost 17% – a pretty chunky increase 

 

Sales	£1,169,811
Cost of sales	(£859,811)
Gross Profit	£310,000
GP %	26.5%
Overheads	(£210,000)
Net profit	£100,000

 

• Increase your prices 

• We still need £310,000 of gross profit to get £100k net profit 

• So if our cost of sales remain at £735,000 then we need total sales of £1,045,000 

• An increase of £45,000 (compared to almost £170k if we focused on increasing the number of customers – which may actually mean an increase in some other variable costs / pushing the current team to capacity) 

• A 4.5% increase in sales price 

• If the average sale was £10,000 then the new sales price would be £10,450. How many customers would you lose on a £450 increase for a £10,000 sale? 

 

Sales	£1,045,000
Cost of sales	(£735,000)
Gross Profit	£310,000
GP %	29.67%
Overheads	(£210,000)
Net profit	£100,000

 

 

• Cut costs / make efficiencies? 

• Total costs are £945,000 (£735,000 + £210,000) 

• To hit £100k net profit on £1m of sales we need to reduce them to £900k 

• This is a reduction of 4.76% 

• This might not seem like much – but it takes a lot of work and effort to get almost a 5% gain in efficiencies within your business. 

• The profit and loss would effectively revert back to the original example at the top of this email. 

 

Reviewing your pricing is probable the easiest lever to pull to generate the biggest results. 

 

russell + russell