Quick answer
To raise prices well, first work out the increase your costs and margin need, then test how many sales you could lose and still earn the same gross profit. Give reasonable notice, explain briefly and honestly, apply the rise from a clear date, and train staff to answer questions. Small regular rises are usually easier to accept than rare large ones, and most businesses lose fewer customers than they fear.
Key points
- Because direct costs don't change, a price rise goes straight to gross profit.
- Work out break-even volume before deciding: how many sales could you lose and still be ahead?
- Notice, a short honest reason and a clear start date matter more than the wording.
- Review prices at least annually; April's wage and KiwiSaver changes are a natural trigger.
Many owners would rather absorb a cost increase than tell customers their prices are going up. It feels safer. It isn’t: every year a business doesn’t adjust prices, wages, levies and materials keep rising and the margin quietly shrinks. Raising prices well is a skill, and like most skills it gets easier with a method.
Why does a small price rise matter so much?
When you raise a price, the cost of delivering the product or service doesn’t change. Every extra dollar goes straight to gross profit.
Illustrative example. A Nelson bakery sells a pie for $8.00 excluding GST. Ingredients, packaging and direct labour cost $5.20, leaving $2.80 of gross profit. A 6% rise takes the price to $8.48. Gross profit becomes $3.28, up 17%.
That’s why a 6% price rise can be worth far more than a 6% increase in sales: the extra sales would bring extra costs with them, the price rise doesn’t.
How do you decide how much to raise prices?
Three inputs:
- What your costs need. Work out how much your direct costs and overheads have risen since the last review. Wage changes from 1 April (the adult minimum wage is $23.95 an hour from 1 April 2026), the KiwiSaver default contribution increase and supplier price rises are common drivers. Repricing after the minimum wage rise shows how to flow them through.
- What your margin should be. If margins have already slipped, the rise needs to restore them, not just keep pace.
- What the market will bear. Look at competitors on a like-for-like basis (watch GST-inclusive versus exclusive comparisons) and at how much customers value what’s distinctive about you.
How many customers can you afford to lose?
This is the question that stops most owners, and it has a clear answer. Divide your current gross profit per sale by the new gross profit per sale; the result is the share of sales you need to keep.
| Gross margin before the rise | 5% price rise: sales you could lose and break even | 10% price rise: sales you could lose and break even |
|---|---|---|
| 20% | 20% | 33% |
| 30% | 14% | 25% |
| 40% | 11% | 20% |
| 50% | 9% | 17% |
Illustrative. Assumes direct costs per sale don’t change.
The thinner your margin, the more a price rise helps and the more sales you could lose without being worse off. Run your own numbers in the price-rise calculator.
When is the best time to raise prices?
- At a natural review point. The start of the tax year in April, after the minimum wage changes, or the anniversary of a contract.
- When you’re busy. A full order book gives you confidence and shows customers you’re in demand.
- With something new. A new menu, service package or product range is a natural moment to reset prices.
- Not mid-job. Honour quotes already given. Apply new prices to new quotes and orders from a clear date.
How do you tell customers?
Keep it short, honest and specific:
“From 1 May our hourly rate will move from $98 to $105 plus GST. Wages, ACC and materials have all risen over the past year and this lets us keep the same standard of work. Quotes already issued will be honoured. Thanks for your continued business.”
A few principles:
- Give notice to regular business customers; 30 days is a common courtesy, and check any contract terms.
- One reason is enough. Long justifications invite negotiation.
- Tell staff first and give them the same wording to answer questions.
- Make sure the new price is displayed correctly, including GST for consumers. See GST-inclusive pricing.
Can you raise prices without changing the headline number?
Sometimes. Other levers include introducing a minimum charge or call-out fee, charging separately for things previously thrown in (travel, after-hours work, small parts), tightening what’s included in a package, or moving customers to tiered options where the standard tier costs more and a basic tier exists for price-sensitive buyers. These work best alongside a modest headline rise rather than instead of one, because customers notice hidden changes and trust matters more than any single price. What you shouldn’t do is shrink quality quietly; the margin you gain rarely makes up for the reputation you lose.
What if some customers push back?
Some will. Decide in advance which accounts you’d be willing to negotiate with (perhaps a phased rise for a large, reliable customer) and which you’d let go. Look at the margin on the customers who complain loudest: they’re sometimes the least profitable accounts you have. Losing them can free capacity for better work.
How do you know if the rise worked?
Measure it. Compare the three months before and after the change on sales volume, average sale value, gross margin and customer numbers. If volume dipped less than the break-even loss you calculated, the rise paid off. Watch for slower effects as well, such as regular customers ordering less often, and compare the result with your forecast rather than with last year, which may have had different conditions.
Stronger margins, then the next step
A well-judged price rise often funds the growth step owners have been putting off: a new hire, better equipment, a larger premises. If you’d like funding lined up behind that step, you can see what’s possible without a credit check.
Ready to grow on better margins?
When pricing is right and the plan needs capital, talk to us. We look at unsecured options for trading businesses and loans secured on residential or commercial property. Enquiring won’t affect your credit file, your details stay with our team rather than being shopped around, and a real person reads what you send. Accurate answers mean a more useful first call. Start your enquiry.
Frequently asked questions
How much notice should I give before raising prices?
For regular business customers, 30 days is a common courtesy, and some contracts specify notice periods, so check them. Retail and one-off customers generally see the new price on the date it applies.
Should I explain why prices are going up?
Briefly, yes. A short, honest reason, such as rising wages, materials or levies, is usually accepted. Long justifications tend to invite negotiation.
Is it better to raise prices a little every year or a lot occasionally?
Small regular rises are usually easier for customers to absorb and keep your margin from eroding between reviews. Large rises after years of no change are more noticeable.
What if a customer threatens to leave?
Listen, explain the value you provide, and decide in advance which accounts you'd negotiate with. Some customers who leave over a modest rise were unprofitable to begin with.