Most businesses set their prices once, when they were smaller, then adjust at the edges. The structure underneath is rarely revisited. That is how a price ends up describing a business that no longer exists.
Nothing about this looks like a mistake while it is happening. Every individual decision was reasonable. The accumulation is the problem.
Pricing belongs to nobody
Sales owns winning the work. Delivery owns doing it. Finance owns reporting what happened. The price sits between all three, which means it is influenced by everyone while being owned by no one.
The consequence is that pricing gets adjusted rather than reviewed. A discount here to close something. A rate held flat because the conversation felt difficult. A scope that grew without the invoice following.
Each of those is a small decision made by somebody doing their job properly. None of them is recorded anywhere as a change to pricing, because none of them was.
Four ways a price drifts
- Cost moved, the price did not. Wages, insurance, software, compliance. These rise on their own schedule. A price set before three of those increases is now quietly carrying them.
- Scope grew, the price did not. What you deliver today includes work that was never in the original quote. It arrived one favour at a time. It is now expected.
- Discretion became habit. A discount authority granted to close one difficult deal becomes the standard opening position. Nobody decided that. It simply stopped being exceptional.
- Value moved, the price did not. This is the one that is upside rather than loss. What you deliver is worth more than it was, because you got better at it. The price still reflects the earlier version.
The half that is opportunity
It is easy to read all of that as leakage. Two of the four are.
The other two describe a business charging less than it is worth, which is a different problem with a different fix. Recovering a discount is a negotiation. Repricing something whose value has grown is a positioning exercise. It needs evidence rather than confidence.
Both matter. A pricing review that only hunts for leakage will find some, then stop short of the larger number.
Why it rarely gets fixed
The stated reason is almost always the same. We would lose customers.
That may be true. It is also, in most businesses, untested. It is an assumption carried for years without anybody checking it against what customers actually do, which is a strange thing on which to bet a margin.
The testable version is narrower. Which customers, at what increase, with what alternative available to them. Answered that way it stops being a fear and becomes a segment-by-segment question. Some segments turn out to have very little alternative at all.
What a pricing problem looks like in the accounts
It rarely appears as pricing. It appears as margin.
Revenue grows, gross margin softens, nobody can say precisely why. The explanation offered is usually mix. Sometimes a difficult year. Sometimes one contract that went badly. Any of those can be right. Often the mix has not moved at all and the price has.
The distinction matters because the two have opposite responses. A mix problem is a sales targeting question. A price problem is structural. Selling more of the same thing makes it larger rather than smaller.
How to measure your own price drift
None of this needs an external review to start. Pricing leaves a trail in systems you already run. The first pass takes an afternoon.
| Where to look | What to pull | The calculation | What it tells you |
|---|---|---|---|
| Accounting: Xero, MYOB or QuickBooks | Gross margin by service or product line, three years side by side | Gross profit ÷ revenue = margin by line | Whether margin is drifting down while revenue grows |
| Quoting or invoicing system | Quoted value against invoiced value, per job | Invoiced value ÷ quoted value = price realisation | The gap is discount plus unbilled scope |
| CRM: HubSpot, Pipedrive or Salesforce | Discount applied per deal, split by salesperson | Discount value ÷ list value = average discount | Whether discretion has quietly become the default |
| Timesheets or job system | Hours delivered against hours quoted, by job type | Hours delivered ÷ hours quoted = scope ratio | Scope creep, which is a pricing problem wearing a delivery costume |
| Aged receivables | Debtor days by customer | Receivables ÷ average daily sales = debtor days | Customers whose effective price is lower than the invoice claims |
| Your own price list | The date it last changed | Months since the last change | Frequently the finding on its own |
The one number to hold
- Price realisation.
Invoiced value ÷ quoted value, by job type, across twelve months - Below 90% is worth explaining
- Below 80% is usually structural rather than situational
- Calculate it monthly with a threshold that raises an alert, so the trend finds you instead of waiting to be looked for
The control worth introducing
- A written discount authority. Who may reduce a price, by how much, without asking anyone
- Most businesses run an unwritten version that everybody has quietly widened
- Put a date on the price list itself. A list with no revision date is a list nobody owns
Where your number will mislead you
- Gross margin by line hides mix. Sell more of a naturally thinner service this year and margin falls without any price having moved
- Price realisation flatters anyone who quotes high and expects to discount. Read it against the discount figure rather than on its own
- Check the mix before concluding anything about the price. Otherwise you will fix the wrong thing
What would you quote that job today?
Take a piece of work you delivered last month for a long-standing customer. Price it as though they had walked in yesterday, at today's costs, with today's scope.
If the number comes out materially higher than what you invoiced, you have found something. You found it without anyone's help.
The next question is how far the gap extends. One customer is an anecdote. If it holds across a segment it is a structural number that compounds every month nobody looks at it.
The Free Health Check covers commercial and financial management among its six areas, in about three minutes. If you want the gap sized across every line rather than sampled, a diagnostic is built to do exactly that.
Photo by Bernd Dittrich on Unsplash.