Trick or treat? For many fast-growth businesses, pricing can feel like a bit of both…
It can be tempting to play it safe, especially if you’ve grown quickly by keeping prices low. But undercharging can quietly drain your margins and stall your scaling efforts.
In this month’s Scale Monthly, we explore how to approach pricing with confidence, by using your financial data to stay profitable and competitive, whilst avoiding the all-too-common trap of ‘growing’ without actually improving your bottom line.
Why does pricing get overlooked?
It is common for founder-led businesses to start with low rates in the early days, in a bid to win early clients or outpace competition. As costs rise and your business’ value increases, holding on to outdated pricing can start to eat into profits.
Cost-based vs value-based pricing
When it comes to pricing, there are two common approaches: cost-based and value-based.
- Cost-based pricing involves calculating your total costs (including time, materials, overheads) and adding a profit margin. It’s simple, but risks undercharging if it doesn’t reflect the value you provide.
- Value-based pricing starts with the benefit your product or service delivers to the client. If you’re solving big problems or saving time, you may be justified in charging more.
Top tip: If you haven’t reviewed your pricing in the last 12 months, it’s helpful to start with a cost-based sense check, and then start to layer in value.
Use your numbers to stay on track
Your financial data is hugely valuable when it comes to guiding your pricing strategy. Pricing decisions made in isolation often miss the full picture.
By looking closely at your numbers, you can spot the profit drains and find opportunities to improve margin without sacrificing competitiveness.
Here are some things to consider:
- Review gross margin by product or service – Which services or products generate healthy profit, and which just break even? This helps you focus on what’s working, or reassess the pricing or delivery of low-margin items.
- Understand fixed vs variable costs – As you grow, some costs will scale with you (staffing, materials) and others won’t (software, rent). Knowing this helps you price in a way that maintains margin as volume increases.
- Track profit per client – When you factor in delivery time, communication, and overheads, you may find that some clients may be costing you money. Reviewing profit per client will give you the confidence to adjust pricing or reprioritise where you invest your time.
Tools like Xero can help visualise these metrics clearly, giving you the insight to make informed decisions. With the right dashboards in place, you can start to make pricing decisions based on live data.
How to raise prices with confidence
We appreciate that conversations about raising fees can be uncomfortable, but avoiding them can do more harm than good.
When pricing changes are handled transparently and linked to the value you deliver, most clients will understand. In fact, many will respect your professionalism for addressing the subject head-on.
- Be transparent about cost pressures or service improvements that may be driving the increase
- Give plenty of notice ahead of the price increase going live
- Reiterate the benefits that you are delivering as a reminder of the value you provide
You may find that some clients choose to move on following a price increase. While this can feel disappointing, it’s a natural part of growth. Not every client will be the right fit for your next stage, and that’s okay – as long as your pricing aligns with your value and your pipeline continues to grow alongside your business.
How we can help
At Harold Sharp, we help fast-growth businesses adopt the systems they need to scale efficiently and compliantly. From data that drives pricing to building a finance function that grows with you, our team are on hand to make sure you have the visibility you need to achieve your ambitious goals.
To discuss how pricing strategy fits into your growth strategy, contact James Turner on the below or complete our Contact Form.
James Turner
Accountant | Fast growth
0161 905 1616
jt@haroldsharp.co.uk