The Margin Conversation: Reviewing and Raising Prices Without Losing the Accounts That Matter

Most UK owners do not set prices so much as inherit them. A rate is agreed at launch, adjusted when a large customer pushes back, and then left alone while wages, energy, software and finance costs move. The result is rarely a sudden loss. It is a slow erosion of margin that surfaces months later as a cash-flow problem rather than a pricing one.

A margin-first pricing review reverses the sequence. Instead of asking what the market will bear and hoping for a profit, it starts with the profit the business needs, tests which customers and lines can deliver it, and then communicates the answer in a way that protects the relationships worth keeping.

Begin with the profit you need

Margin-first pricing starts at the bottom line. Add the overhead the business must carry to the profit the owners need to take out or reinvest. That gives the required gross profit. Divide it by planned sales and you have the minimum gross margin the pricing model must support.

For example, a company planning £600,000 of sales with £120,000 of overhead and a £60,000 target profit needs £180,000 of gross profit. That is a 30% gross margin. If the actual margin is 24%, the gap is not a rounding error; it is £36,000 of missing gross profit. No amount of invoice chasing fixes a pricing model that does not clear its own cost base.

Use your own figures, and use a conservative sales number. The purpose is to set a floor, not a wish. If the required margin looks uncomfortable, the answer may be a smaller overhead, a different mix of work or a smaller business — but it is better to see that before the next price round than after it.

Work out which customers and lines earn their keep

Revenue is not contribution. For each customer or product line, deduct direct costs, delivery, payment fees, returns and an allowance for service time. A customer who pays late, demands weekly reports and orders in small quantities may be less profitable than a smaller, quieter account that pays on time and accepts standard terms.

Rank customers by gross profit and by gross profit per hour of admin. Look at twelve months, not one busy quarter. The same discipline applies to lines: a service that looks healthy at 40% gross margin can be loss-making after wastage, rework, returns and support. The point is not to fire every awkward customer. It is to know which accounts are subsidising which, and to price the difficult work accordingly.

Stage the increase

A single percentage across the board is rarely the right answer. Segment the base instead. New customers can be quoted at the new rate immediately. Standard accounts can be given notice and a clear effective date. Long-standing legacy accounts may need a longer notice period or a two-step increase. High-maintenance accounts can be repriced for the service they actually receive, or moved to different terms.

Check contracts before you write. Notice periods, fixed-term agreements and indexation clauses all matter. If a contract has a CPI-linked clause, apply it rather than inventing a separate increase. If it has no clause, use the notice period properly. A price rise that breaches a contract is a discount to the customer and a risk to you.

Staging also gives you a test. Raising prices for new customers first shows what the market accepts without putting the existing base at risk. If new quotes begin to stall, you have learned something before the renewal letters go out.

The awkward part: writing and saying it

Keep the message short. State the new price, the effective date and the reason in one sentence. Do not over-explain, and do not apologise for charging for the work. A useful structure is: what is changing, when it changes, and what stays the same.

A written note might read: ‘I am writing to confirm that our rates will increase by 5% from 1 April 2026. This reflects higher wage, energy and insurance costs across the business. The new rate for your current scope is set out below. I am happy to talk through the detail.’ That is enough. A long letter invites negotiation on the principle.

For a phone call or meeting, prepare three points: the change, the date and the service that remains unchanged. Do not negotiate the principle on the spot. If pressed, offer to review scope rather than discount the rate. ‘I can look at the scope with you’ is a stronger position than ‘I can do something on price.’

Give long-standing accounts a call before the letter. A letter that arrives cold after ten years feels like a transaction; a call that precedes it feels like a relationship. The customers worth keeping will usually accept a clear, reasoned increase. The ones who leave on price alone were often the ones eroding margin in the first place.

A short annual rhythm

Run the full review once a year in a fixed month, and put it in the calendar with the same seriousness as the year-end accounts. Monthly, watch gross margin by customer and line. Quarterly, check late payment and service cost. Annually, reset the target profit, reprice the base and write to customers.

Review new quotes monthly, because that is where pricing drift starts. Review existing prices annually, because that is where margin quietly disappears. The rhythm matters more than the perfect spreadsheet.

What to do next

Pick ten customers that represent a meaningful share of revenue. Calculate their true contribution after direct costs and service time. Set a target gross margin from the profit the business needs. Identify the increases, stage them by segment, and draft the letter before the next renewal date. The awkward conversation is shorter than the slow loss of margin.