What your books tell you about pricing
Most small businesses set prices by looking at competitors. Your own ledger is a better source, and it is already sitting there.
Pricing feels like marketing, so it rarely gets checked against accounting. But the ledger holds the only honest record of what delivery actually costs you, including the parts nobody remembers when quoting.
Start with gross margin, not profit
Gross margin is revenue less the costs that move with each sale — materials, direct labour, subcontractors, card fees, delivery. Net profit mixes in rent and software and tells you about the whole business. Gross margin tells you about the deal, and the deal is what you are pricing.
Break-even in one line
Take your fixed monthly costs and divide by your gross margin percentage. That is the revenue you need before anything is profit. A business with a 30 percent margin and 6,000 of fixed costs needs 20,000 a month to stand still. Knowing that number changes how a 5 percent discount feels.
A discount is not a marketing cost. It comes out of margin, which is the only place profit lives.
Three signals your price is wrong
- Revenue is growing while gross margin percentage falls — you are buying volume with price.
- Operating cash stays flat through a strong quarter — the extra sales are funding themselves and nothing else.
- One product or client line consistently prices below the average margin and absorbs the most time.
Make the test cheap
Raise one price by a modest amount and watch two ledger figures for a full month: gross margin percentage and units sold. If margin rises and volume holds, the price was low. If volume drops sharply, you have learned something real for the cost of one month. That experiment is only possible when your costs are classified consistently — which is what a well-kept chart of accounts buys you.
