Recalculate the cost and margin of each service before changing rates. A supplier’s price increase is a reason to review your numbers—not a percentage you should automatically pass on to every customer. Set a defensible rate by weighing updated delivery costs against the value clients receive, market context, and any contract or notice requirements.
How much should you raise your service prices?
There is no universal pass-through percentage. The right rate depends on how your total cost to deliver each service has changed, the profit you need, the value clients receive, and what the market will bear. Start with service-level costs rather than applying a supplier’s increase to your whole price list.
Recalculate the full cost of each service
For each affected service, record the supplier inputs and their new delivered costs, including shipping or other charges that apply. Add the labor needed to perform the work and a reasonable share of overhead. Overhead can include insurance, utilities, software subscriptions, taxes, marketing, and transaction fees. SCORE’s pricing guide identifies labor and materials, overhead, and profit as core elements of a service price, and cautions that available working hours are not all billable hours: SCORE’s guide to pricing products or services.
Compare the old and updated cost for each service, then calculate its current and proposed gross margin. SCORE defines gross profit margin as (total sales − cost of sales) / net sales. Margin is not the same as markup: markup uses cost of sales as its denominator, while margin uses net sales. Keeping the distinction clear helps prevent an apparently adequate markup from falling short of your margin target.
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An illustrative example from David Rich of SCORE Western Connecticut describes costs rising 8% while prices stay flat, reducing margin. That 8% is an example of the effect of rising costs, not a general statistic or a recommended price increase. Your service’s cost mix and labor requirements determine its own result. SCORE’s discussion of rising costs and profitability.
Use cost, value, and market context together
Cost-plus pricing provides a baseline: total the cost to deliver the service and add the profit you need. It does not show by itself whether clients will accept the resulting price. Compare that baseline with competitor rates and with the value or outcome your service delivers. A service that saves a client time, reduces risk, or produces a valuable result may be worth more than its labor hours alone suggest.
These are complementary lenses, not competing formulas. A QuickBooks overview of pricing methods describes cost-based, competitor-based, and value-based approaches; use them to test a proposal rather than treating any one as a complete answer. Its reported 3.8% U.S. CPI increase over the 12 months ending April 2026 is historical inflation context, not a supplier-cost index or a recommendation for your rate. QuickBooks overview of pricing methods.
Should you pass supplier increases on to customers?
Sometimes, but not necessarily in full or across every service. First see whether the cost increase materially changes the margin on the work affected. Then consider the customer’s price sensitivity, the service’s differentiated value, your competitive position, and any relevant agreement. SCORE recommends selective price adjustments rather than assuming every service needs the same increase. SCORE’s guidance on managing rising costs.
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Random freezes, missing sound and display glitches usually trace back to one bad driver. Find and replace yours safely.Free scan · under a minuteBefore passing costs through, review whether sourcing, supplier terms, or operating costs can be improved. A lower-cost supplier or reduced waste might restore some margin without the same customer impact, though any change must preserve the quality and scope clients expect.
Compare your pricing options
Assess each option against margin recovery, customer value and price sensitivity, competitive position, operational simplicity, and contract or notice constraints.
| Option | When it may fit | What to assess |
|---|---|---|
| Targeted increase | Only certain services have materially higher costs or weaker margins. | Whether affected services regain adequate margin without raising unrelated rates. |
| Cost-plus recalculation | You need a cost-based baseline after updating direct costs, labor, and overhead. | Whether the resulting price also fits client value and market context; cost-plus alone does not establish customer acceptance. |
| Value-based repricing | The client outcome or value is a better guide than time spent alone. | Whether the price reflects the result clients receive and remains credible in your market. |
| Tier or scope redesign | Some clients need a lower-cost option, but the current full service has become uneconomic at its old price. | Whether a reduced-scope tier preserves a clear, worthwhile offer while the full or premium service is priced appropriately. |
| Temporary transition | You want to phase in new rates for existing or important accounts. | A clear end date and conditions for any grandfather period, and the margin impact during the transition. |
| Cost reduction or supplier review | There may be room to limit the increase before changing customer rates. | Whether sourcing or operating changes are practical without reducing service quality. |
These options can be combined. For example, you might update rates only for services with materially changed costs while introducing a reduced-scope tier for clients with fixed budgets. SCORE describes selective increases, scope adjustments, and transition approaches as possibilities to evaluate—not guaranteed ways to retain customers. SCORE’s guidance on raising service rates.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.How do you tell clients your rates are going up?
Give existing clients written notice well before the new rate takes effect. SCORE suggests 30 to 60 days as practical guidance for service businesses; it is not a universal legal requirement. Check your contracts and applicable local rules before setting or describing a required notice period.
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What to include in a rate-change notice
- The date the new rate begins.
- The current and new rate, or a clear description of the revised pricing structure.
- Any change to the service’s scope, tier, or included work.
- A brief, direct explanation and a clear way for the client to ask questions.
How can you raise rates without losing clients?
No transition approach can guarantee that clients will stay, but you can make the change more deliberate. Consider applying new rates to new customers first, temporarily grandfathering selected key accounts, or offering a reduced-scope tier for clients who cannot afford the full service. Set any grandfather period’s end date and conditions in writing. Avoid discounting the same work indefinitely if that leaves the service below its sustainable margin.
Before announcing a change, check your actual customer mix and service agreements. A rate that is viable for new work may need a different transition for a long-standing client or a contract with specific pricing terms. If the cost and margin calculations are difficult to allocate, SCORE offers free mentoring to business owners seeking help analyzing their numbers: SCORE.
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