There is a particular kind of business that has not put prices up in years.
The owner can usually tell you why. In most cases the market would not wear it. Competitors are not raising. Customers are price sensitive. The product or service has not changed enough to justify charging more.
What I have come to believe is that these reasons are almost never the actual reason.
The actual reason is usually one of three things, and none of them have much to do with the market.
The first is that the owner has not raised prices because they are not sure their business is worth more than it was three years ago. This is the most common one and the most rarely admitted. The owner has a quiet feeling that the value they deliver has not really changed, and so a price increase feels like asking the customer to pay more for the same thing. Whether that is true or not is a separate question, but the unspoken belief is what is actually holding the prices flat.
The second is that the owner has not raised prices because they are afraid of the conversation. Specifically, the conversation with their top three or four customers, who have been with the business for years, who are friendly, who they do not want to upset. The fear of those four conversations is enough to hold the entire pricing structure of the business in place. The other ninety percent of customers, who would barely notice a five percent increase, do not get the price rise because the owner is protecting a handful of relationships at the top.
The third is that the owner does not actually know what their margins are doing. They have a sense that things are roughly the same as they were a few years ago. They have not looked closely enough to realise that costs have risen, that wage inflation has compressed the gap between what the work costs to deliver and what it is being sold for, and that the business is now operating on a noticeably thinner margin than it was. Without that visibility, the case for a price rise feels theoretical. With it, the case becomes urgent.
What I have observed is that businesses that have not raised prices in three years are usually in one of these three positions, regardless of what the owner says when asked. The market is rarely the reason. The market is the explanation that gets offered when the actual reason is harder to say.
The cost of holding the line is significant. Not just in revenue forgone, although the compounding cost of three years of flat pricing in an inflationary environment is enormous. The bigger cost is the message it sends, internally. A business that does not raise prices teaches its team, slowly, that the business is not worth more than it was. Which becomes true, over time, because nothing about the business is being asked to grow up.
If your prices have not moved in three years, the question worth sitting with is not whether the market would accept an increase. The market would. The question is which of the three things underneath it is actually holding you in place.
Murray.
