Most companies raise prices too rarely and too evenly: only after costs have eaten the margin, and by the same percentage for every customer. Both cost money. A well-run price rise protects margin and keeps the customers you most want to keep.
Do the arithmetic first
Before deciding how much to raise prices, work out how much volume you could lose and still earn the same profit:
Volume you can lose = price rise ÷ (margin + price rise)
Use contribution margin: price minus the costs that rise and fall with each sale. With a 30% margin, a 5% price rise earns the same profit even if volume falls by 14%. Few customers leave over 5%, so the rise usually pays.
- Can lose 20%
- Must keep 80%
- Can lose 14%
- Must keep 86%
- Can lose 11%
- Must keep 89%
- Can lose 8%
- Must keep 92%
At these volume losses, profit stays the same. The lower your margin, the more volume a price rise can afford to lose, because every extra rupee of price goes straight to profit.
Not every customer gets the same rise
| Customer | Approach |
|---|---|
| Relies on you heavily, low margin today | The full rise. They are under-priced |
| Relies on you heavily, good margin | A moderate rise, explained well |
| Price-sensitive, low margin | The largest rise. Accept that some will leave |
| Price-sensitive, good margin | A small rise, or change the package instead |
Other ways to raise the price
- Charge for what you give away: urgent delivery, extra revisions, custom reports.
- Change pack sizes or minimum order quantities.
- Add a lower tier with less included, and move the main offer up.
- Index long contracts with a clause that adjusts the price each year to an agreed index.
How to tell customers
Give notice, and give the reason in one line, without apologising. Brief the sales team first, with a script and a firm limit on discounts. Most price rises fail because salespeople give them back.
Points specific to India
- GST. B2B prices are usually quoted before GST. Say so in the notice, so the customer compares like with like.
- MRP. For packaged goods, a new MRP means new labels on the pack and on every online listing. Our packaging guide covers the label rules.
- Fixed-price contracts. Government and PSU contracts often fix prices for the term, so the rise waits for renewal.
Check that it stuck
Track price realisation: the price you actually receive after discounts, by customer. If realisation does not rise with the list price, the rise did not happen.
