Should I raise my prices in 2026?

A version of this article was first published on 12 December 2020

You’ve put in the hours developing your product or service. Now it’s time to get it out there with pricing that reflects its value.

The right price point isn’t just about covering your costs. It tells your customer what to expect. It gives your business space to grow. And done right, it can make the difference between scraping by and turning a profit.

Let’s dig into how to properly price your product or service. And if you want to raise your prices, here’s what to do.

How to price your product or service

Pricing is never, or certainly shouldn’t ever be, random. While it can be helpful to look at what competitors are charging, a better place to start is by reviewing your overall business costs.

1. Know your numbers

Before anything else, understand your costs — not just materials or your time, but software, marketing, insurance, delivery, rent and even overtime pay. Break it down into:

Fixed costs

These tend to be business costs that you expect to remain consistent over the year. Examples of fixed costs include:

Rent and business rates
Accountancy costs
Business insurance
Permanent employee costs
Storage costs
Software subscription costs, including your website

Variable costs

These are costs which can change frequently. Some will be within your control, like advertising, marketing or event attendance costs. Others won’t be, like shipping costs and credit card fees.

Examples of variable costs include:

Advertising and marketing spend
Affiliate commission
Credit card fees
Event attendance (for example, craft fairs)
Raw materials or packaging
Shipping costs
Temporary employee costs
Utilities
Wholesale products

Your time

Perhaps the most important cost is your time. You should understand what you want (or need) to earn hourly or monthly.

If you feel awkward charging for your time, remember that pricing your work properly is a form of self-respect and business sustainability. You’re not just charging for time, but for your experience and quality.

When working out costs, a good starting point is to use the cost-plus pricing method. The formula for this is: Total costs + target profit = price

Once you’ve figured out all your costs, it's time to work out how many units of your product or service you’d need to sell to meet these costs. Try doing a breakeven analysis to kick this off.

2. Check the competition

Once you’ve calculated your breakeven point, it’s time to do some market research. Carrying out a competitive analysis can be a good way to start and will inform not only your pricing strategy but marketing and product development, too.

Look at what others in your space are charging — especially businesses targeting similar customers. Are you positioning yourself as affordable, premium or something else entirely?

Start by asking yourself:

How does your offering, experience and brand compare?
Do you offer more flexibility, better service or custom options?
What’s their delivery or turnaround time like?

Remember: Undercharging to ‘win’ on price can backfire. You’ll need to raise prices eventually, and customers you’ve undercharged in the past may not stick around when you do.

3. Understand your customer

It may also be a good idea to carry out some of your own original research to really understand what your target market is willing to pay and what they expect from your product or service.

What do they value most — speed, quality, ethics, convenience, a personal service or something else? Pricing should reflect your value to them, not just your costs.

Conducting a short online survey may be the quickest way to do this, asking questions like:

“What would you expect to pay for this?”
“What would feel like too much?”
“What would feel suspiciously cheap?”

4. Pick a pricing strategy

Pricing isn’t just a number — it’s a message. It shapes how customers see your business, what they expect and who they think your offer is for. The right strategy depends on your goals, your audience and your costs.

Here’s a breakdown of some of the most useful pricing approaches:

Cost-plus pricing: This is when you work out how much it costs to make or deliver your product or service — then add a markup to give you a profit.
Value-based pricing: Here, your price reflects the benefit your product or service gives your customer. This can often mean charging more than a cost-based approach.
Penetration pricing: This strategy is all about getting noticed and getting customers through the door. You set an intentionally low price when you launch, intending to raise it later.
Freemium or tiered pricing: This is when you offer a basic version for free (freemium), or create a few pricing tiers with increasing levels of features, access or support. It works especially well for digital services.
Psychological pricing: This is about how people feel about a price, not just the maths. Certain numbers feel more affordable even if the difference is pennies, for example, £9.99 versus £10.
Project or package pricing: This can be a useful strategy for creatives or consultants. Instead of charging by the hour, you quote a set price for a job. This gives clients certainty and rewards you for working efficiently.

Work out your profit margins

Once you’ve got your break-even point sorted and done your homework on the competition, it’s time to think about profit — not just making money, but keeping it.

Put simply, profit margins help you understand how efficient your business is. They tell you how much money you’re actually keeping from each pound earned, after covering your costs. And they come in a few flavours — each one giving you a different insight into how your business is running.

Three key profit margins (and how to calculate them)

Here’s a quick overview of the three types of profit margin worth knowing:

Type	What it shows	Formula
Gross profit margin	The profit left after direct costs (like materials or labour)	(Gross profit ÷ Revenue) × 100
Operating profit margin	The profit after running costs (like rent, staff and tools)	(Operating profit ÷ Revenue) × 100
Net profit margin	The profit you actually keep after all costs — including tax, insurance, software and your time	(Net profit ÷ Revenue) × 100

Each margin tells a story — and helps you spot where profits might be slipping away, or where there’s room to improve efficiency.

Let’s take Joe’s Coffee as an example. Joe made £200,000 in total revenue over the year.

Gross profit: £70,000
Operating profit: £30,000
Net profit: £25,000

Here’s how Joe’s profit margins stack up:

Gross profit margin = (£70,000 ÷ £200,000) × 100 = 35%
Operating profit margin = (£30,000 ÷ £200,000) × 100 = 15%
Net profit margin = (£25,000 ÷ £200,000) × 100 = 12.5%

So for every £1 Joe’s Coffee earns, around 12.5p is actual profit. That’s the money left to reinvest in the business, build a buffer or pay Joe himself.

An average net profit margin in the UK sits at around 10% — but that’s just a ballpark. What’s considered good really depends on:

Your industry (consultants and software businesses tend to have higher margins than product-based businesses)
Your pricing model (retainers, one-offs, hourly, subscription)
How lean your business is — or how much you reinvest

Your price needs to leave enough room to run your business sustainably and pay yourself fairly. If you’re only just scraping by after covering expenses, your pricing likely needs a second look.

Remember: the prices you set today won’t be forever. While it’s important to make sure your prices set you up to be profitable — and don’t put off your target market — you can and should experiment with your pricing.

The key is to keep an eye on your margins and don’t be afraid to experiment. Pricing is as much a process as it is a decision.

You might consider:

Testing slightly higher prices with new customers or for premium versions
Bundling services or products to boost perceived value
Raising prices gradually, with clear communication (and perhaps added value)

How to raise your prices

Raising your prices can feel nerve-racking. You’re not sure if you’ll be pricing out new customers or doing yourself a disservice by undercutting the competition.

In most cases, your prices should rise in line with inflation, or slightly above it, to keep up with rising costs like materials, wages and overheads. That’s how you protect your profit margins and ensure your business stays sustainable.

Instead of big, sudden jumps, think about smaller, regular increases which are easier for clients to accept, or new pricing models, like retainers or bundles, to spread costs and increase predictability. The aim is to stay profitable without surprising your customers.

So here’s what you could do to get the balance right.

1. Time it right

Don’t wait until you’re underwater to raise your prices. Instead, plan annual price increases or when your costs rise, your experience grows or you’ve enhanced your offer.

Good times to raise prices include:

At the start of a new tax year
After a major product or service upgrade
When introducing new features, add-ons or support

2. Give notice — and a reason

Customers are far more likely to accept an increase if they know:

It’s not sudden
There’s a reason behind it
They’re getting something in return

That’s why it’s important to take your customers on the journey with you by creating transparency. An example message to your customers could be:

From April, we’re making a small increase to our monthly prices. This reflects rising operational costs and allows us to keep offering the quality of service you expect — plus a few new features we think you’ll like.

3. Add value, even if just perception

Even if your product stays the same, think about ways to frame the price increase around value:

A new packaging style
A refreshed brand experience
Better support
Free resources or loyalty perks

Extra tips for small businesses

Factor in VAT: Are you VAT registered? If not, will you need to be soon? Plan for this in your pricing
Remember National Insurance: If you’re self-employed, don’t forget to factor in your own contributions when calculating what you need to earn
Keep it compliant: If you're quoting prices online, include VAT where applicable and make it clear what’s included
Use tools: Accounting software can help you track profitability and plan pricing
Get advice: Organisations like the Federation of Small Businesses or local business hubs often offer free or low-cost guidance on pricing and financial planning

Glossary of pricing terms

Term	What it means
Break-even point	The amount you need to sell before you start making a profit
Dynamic pricing	A strategy where prices change in real time based on factors like demand, time of day or customer behaviour
Fixed costs	Constant business costs that don’t change, regardless of business activities
Gross margin	The difference between what you charge and what it costs to produce (before other expenses)
Markup	The extra amount added to your cost price to reach the sale price
Net profit margin	The amount of income left after all costs are subtracted from your gross revenue
Operating profit margin	This shows how much profit you make from your core business operations, before tax and interest, after covering day-to-day running costs like rent, wages and equipment
Profit	The amount of money gained after subtracting business costs
Revenue	The gross income generated from your business operations, before any costs are subtracted, to determine net income
Variable costs	Costs that change according to business activities