Pricing Under Inflation: Protecting the Margin, Not Just Raising Prices
What makes inflation hard for a small business isn’t raising prices. It’s not knowing when, or by how much. Move too early and customers leave; move too late and you’ve quietly funded a discount out of your own pocket. The second one is more dangerous, because it happens while revenue is growing — sales look healthy while the margin erodes underneath.
First, separate revenue growth from growth
Under inflation, revenue rises on its own. You can sell the same number of units and still see revenue up 40%. That isn’t growth, it’s a price effect.
The real question is: how many units are you selling, and what do you earn per unit? If you aren’t tracking those two numbers, you will never see the business shrinking by looking at a revenue chart.
The four numbers to track
1. Unit cost. True cost per product or service: materials, labour, energy, transport. Update monthly.
2. Unit margin. Selling price minus unit cost. Keep it as a percentage too — under inflation the absolute figure lies.
3. Your cost basket. Pick your five largest expense lines and record their prices every month. That’s your own inflation index, and it’s far more accurate for decisions than the national one, because it’s your basket.
4. Payment terms. Under inflation, selling on 90-day terms is a discount that doesn’t appear on your price list. The longer the term, the lower your real price.
Cadence beats instinct
Updating prices “when necessary” means, in practice, “once it’s too late.” Set a fixed rhythm:
- Monthly: review the cost basket (a 30-minute job)
- Quarterly: update the price list
- Annually: review the product/service mix — which line has stopped earning
The biggest benefit of the rhythm is psychological. It moves the decision out of emotion and onto the calendar: instead of “should I raise prices?”, it becomes “the quarter is up, let’s look at the table.”
How to explain an increase
Three things work:
Give notice. “From this date next month” lands far better than a surprise on an invoice. In long relationships this alone defuses most of the reaction.
Talk in line items. “Raw material is up 35%” is much easier to accept than “we’ve raised prices.” Specifics don’t get argued with.
Offer an alternative. Leave a path that holds the price: a smaller pack, prompt-payment discount instead of extended terms, a narrower service tier. Customers who can choose tend to stay.
The invisible costs eat the most
The costs most often missed under inflation are the ones without an invoice. Your vehicle’s cost per mile, the life lost in a machine whose service you postponed, an empty rental unit, the financing weight of a late payment. None of them appear as a single line in any expense account, and all of them eat margin.
Which is why pricing work only makes sense alongside asset tracking. If you don’t know what something costs you, what exactly are you basing the new price on? I covered the foundation in the business asset inventory, and what happens when you leave it too late in 5 early signs of a cash flow squeeze.
The Sofft apps exist to close that gap: Odovo produces true cost per mile for a vehicle fleet, Duevo tracks customer equipment and service contracts, and RentMind shows income and expenses per rental unit. A pricing decision only becomes a decision once you have those numbers.
Note: this covers operational pricing. It isn’t investment, tax or financial advice — check your own situation with your accountant.
Frequently Asked Questions
How often should I raise prices? It depends on your sector and how volatile your costs are, but “when necessary” is the worst answer. A quarterly review is a balanced rhythm for most small businesses: frequent enough to protect margin, infrequent enough not to exhaust customers.
My competitor isn’t raising prices — how can I? You don’t know their costs. They may be burning their margin, buying differently, or heading for trouble. You have to price against your own costs. A competitor’s price is a data point, not a decision-maker.
Small frequent increases or one large one? Small and frequent is easier to accept. 7% every quarter lands more softly than 30% once a year — both for the customer and for your own cash flow.
Fuat Çakır — management consultant. He has worked in strategy, business development and general management in manufacturing and export, and now builds tracking apps for small businesses under the Sofft umbrella.