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: 

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 

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 

• 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? 

• 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