Answer these questions before you read on
Commit to an answer before you open each one. Together they show where the problem is.
1When did you last raise prices, and by how much have your costs risen since?
Most businesses absorb two or three years of cost rises before acting.
2If you raised prices 5%, how many customers would actually leave?
Usually fewer than owners fear, and often the least profitable ones.
3Do your annual contracts let you pass on metal, fuel or wage increases?
Without a clause, you're the customer's insurer.
4Do you discount to win orders you'd rather not have?
Discounts are price cuts by another name.
5Do customers buy from you mainly on price?
If they did, they'd have left already.
Every year you don't adjust prices, you give your customers a discount you never agreed.
Why price moves profit more than volume
On a 30% gross margin, a 5% price rise lifts gross profit by about 17% if volume holds. You could lose about 14% of volume and still earn the same. Try your numbers:
Choose where to raise first
- Products with the lowest contribution.
- Customers with the longest credit or highest service cost.
- Small orders and special requests.
- Products where you're the only or best supplier.
- Contracts where input costs have risen most.
Want a CFO to work through your numbers?
Bring your figures to a free consultation with a senior CFO. No cost, no obligation.
Build the case before you ask
- Input cost changes since the last price change, with evidence.
- Your contribution on the customer's business.
- Competitor price levels, where known.
- The service and quality the customer gets from you.
- Alternatives you can offer: pack sizes, terms, volumes.
Six businesses, six versions of the same problem
The same problem looks different in every industry. Pick the business closest to yours:
These are composite businesses with illustrative figures, built to show how the method works. They are not CFOSurge client results.
Distributor, ₹45 crore turnover
The numbers (₹ lakh, illustrative)
| Cash discount given | 1.8% |
| Interest saved by faster payment | 0.9% |
| Margin recoverable | 0.9% |
The diagnosis
The distributor's 'price' is its discount and freight policy.
The full solution, in order
- Stop discounts for late payers.
- Charge freight on small orders.
- Set minimum order values.
Don't do this
- Matching every competitor's scheme.
Numbers to watch every month
- Net realisation per case
Component maker, ₹38 crore turnover
The numbers (₹ lakh, illustrative)
| Steel content of price | 55% |
| Steel price rise | 9% |
| Margin lost | 5% |
| Margin to recover | 5% |
The diagnosis
No price-variation clause, so the OEM is protected and the supplier isn't.
The full solution, in order
- Request a mid-year revision with steel index evidence.
- Negotiate a quarterly index clause at renewal.
- Reprice small batches.
Don't do this
- Waiting for renewal to raise the issue.
Numbers to watch every month
- Quoted vs actual steel cost
Exporter, ₹60 crore turnover
The numbers (₹ lakh, illustrative)
| Yarn cost rise this season | 12% |
| Price rise achieved | 3% |
| Gap | 9% |
The diagnosis
Prices were set before yarn was bought.
The full solution, in order
- Price with yarn bought or hedged.
- Share cost evidence with buyers.
- Shorten price validity.
Don't do this
- Long price validity in volatile markets.
Numbers to watch every month
- Order margin after shipment
Chemicals maker, ₹80 crore turnover
The numbers (₹ lakh, illustrative)
| Raw material share of cost | 60% |
| Raw material rise | 15% |
| Cost rise to pass on | 9% of price |
The diagnosis
Quotes don't reflect raw material or currency.
The full solution, in order
- Link prices to raw material and USD.
- Shorten quote validity.
- Revise now with evidence.
Don't do this
- Absorbing currency movements.
Numbers to watch every month
- Realised price vs cost
Contractor, ₹25 crore turnover
The numbers (₹ lakh, illustrative)
| Cost rise during contract | 8% |
| Escalation recovered | 2% |
| Unrecovered | 6% |
The diagnosis
Escalation clauses cover too little.
The full solution, in order
- Claim escalation fully where allowed.
- Bid with realistic escalation.
- Avoid long fixed-price bids without indices.
Don't do this
- Bidding fixed prices on long projects.
Numbers to watch every month
- Escalation recoverable
IT services firm, ₹12 crore revenue
The numbers (₹ lakh, illustrative)
| Salary cost rise | 25% |
| Rate increase | 0% |
| Rate gap | large |
The diagnosis
The firm has absorbed three years of wage inflation.
The full solution, in order
- Raise rates at renewal with notice.
- Add annual escalation to contracts.
- Charge for change requests.
Don't do this
- Waiting for clients to offer.
Numbers to watch every month
- Realised rate per hour
Hover over a business for a preview (tap on a phone), then click to open the full case.
How to raise prices
- Give notice: 30 to 60 days, in writing.
- Give a reason: input costs, with evidence.
- Link to an index where you can, so the next change is automatic.
- Offer options: a smaller increase for faster payment, larger orders or longer contracts.
- Meet the largest customers personally.
- Hold firm on the bottom group; it's fine if some leave.
Never fall behind again
- Price-variation clauses in every annual contract.
- A price review every quarter.
- Cost every new order on current costs.
- Report realised price in the MIS.
Mistakes to avoid
- Raising every price by the same percentage.
- Apologising instead of explaining.
- Hidden increases customers discover on the invoice.
- Giving it back through discounts.
- Waiting until margins are gone.
Official sources and guidance
Rules, rates and thresholds change. Check the current position at these official sources before acting.
- GST portalReturns, GSTR-2B and input tax credit
ReferenceKey terms in plain English
3 terms
- Price-variation clause
- A contract term linking price to an input cost index.
- Realised price
- The price actually received after discounts and schemes.
- Contribution
- Price less direct costs.
Questions owners also ask
How do I tell customers about a price increase?
In writing, 30 to 60 days ahead, with the reason and evidence, any options you can offer, and a personal conversation with the largest customers.
How much should I raise prices?
Enough to restore your target contribution, targeted at the weakest products and customers first.
What is a price-variation clause?
A contract term that adjusts price automatically when a published index for a key input, such as steel or copper, moves.
Want a CFO to work through this with you?
If you'd like help pricing and negotiating your next increase, A CFOSurge CFO can go through it with you using your actual numbers.
- Plans from ₹50,000 a month, fixed after a free assessment
- Free consultation with a senior CFO
- No cost, no obligation
- Pay nothing if you don't see value in the first 2 weeks