2 min read
Why directors should review pricing formally
Many limited companies set prices at launch and adjust them only under acute pressure — a supplier invoice spike or a lost tender. A scheduled pricing review forces you to examine whether your current rates still reflect your real cost base, your market position and your desired margin, before a problem forces the question.
This worksheet structures that review into three sequential steps: understanding your cost floor, benchmarking against the market, and stress-testing margin at different volume assumptions.
Section 1 — Cost floor analysis
List every direct cost attributable to your product or service: materials, labour, subcontractors, packaging, delivery. Then add an allocated share of fixed overheads — premises, software, insurance, director salaries. The total divided by your unit or hour gives your cost floor; no price below this is sustainable long-term.
- Direct materials or bought-in services (per unit)
- Direct labour time × fully-loaded hourly rate
- Variable overhead allocation (energy, consumables)
- Fixed overhead share (divide annual fixed costs by expected annual units)
- Desired gross margin percentage (your target, not a published benchmark)
Section 2 — Market and competitor positioning
Record the prices you can verify for three to five comparable suppliers or competitors. Note where you sit relative to them and whether that position is intentional. Premium positioning requires a clear, articulable reason; budget positioning requires volume assumptions that hold under scrutiny.
Also consider price sensitivity by customer segment. A commercial contract buyer may have less sensitivity than a sole trader; your B2B client mix will shape how much of a rise the market absorbs without churn.
Section 3 — Margin stress test
Model three scenarios: prices unchanged, a modest increase (for example 5 %), and a larger increase (for example 12 %). For each scenario, calculate gross margin at your current volume, at a 10 % volume drop, and at a 20 % volume drop. This reveals your margin floor under realistic churn assumptions and shows whether a price rise is net positive even if you lose some customers.
If the margin at a 20 % volume drop still meets your minimum acceptable return, the increase is likely defensible. If not, examine cost reduction before raising prices.
Applying the output
The worksheet output should produce a single recommended price or range, with a written rationale that your finance director or accountant can review. Document the date, assumptions and who approved the change. If the review concludes that prices need to rise but cash flow cannot absorb a transition period of lower volume, short-term working capital from a business lender may bridge that gap — illustrative only, not a rate quote.
Frequently asked questions
How often should a limited company formally review its pricing?
At a minimum annually, ideally quarterly if your cost base is volatile. Any significant supplier price change, wage increase or shift in competitor pricing should trigger an ad-hoc review outside the scheduled cycle.
Should VAT be included in a pricing worksheet?
Work in ex-VAT figures throughout so that comparisons between VAT-registered and non-registered suppliers are consistent. Apply VAT treatment separately at the invoicing stage.
Funding for UK limited companies
Credicorp lends to your company, not to you personally — short-term working capital with no personal guarantee. See what your business could access.