When supplier costs rise, recalculate the cost and margin of each affected service before changing your rates. The right increase is not automatically the supplier’s percentage increase: it depends on the service’s full cost, your profit goals, what clients value, market alternatives, and any contract terms.
How much should you raise your service prices?
There is no universal pass-through percentage for service businesses. A supplier’s increase may affect one service much more than another, and the supplier’s percentage change does not tell you how much your total service price should rise. Start by updating your costs service by service, then choose a rate that supports your target profit and makes sense for your clients and market.
Recalculate the full cost of each service
For each service, list direct materials and supplier inputs at their new delivered cost, including shipping or other charges that are part of providing the service. Add the labor required and an appropriate share of overhead. Overhead can include insurance, utilities, software subscriptions, taxes, marketing, transaction fees, and other indirect expenses. SCORE’s cost-management guidance and pricing guide identify labor and materials, overhead, and profit as central parts of pricing.
Use the hours you can actually bill, not simply all hours you work or are available. Administrative work, travel, and gaps between jobs can reduce billable time, so undercounting those costs can make an apparently profitable rate misleading.
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Compare the old and updated margin
Calculate the current and updated cost and gross margin for every affected service. SCORE defines gross profit margin as (total sales − cost of sales) / net sales. Margin is not the same as markup: margin divides profit by sales, while markup divides profit by cost of sales. Keeping the distinction clear helps prevent a rate that looks adequate as a markup from falling short of your margin target.
An 8% cost increase in a SCORE example reduces margin when prices stay flat; it is an illustration of the effect of rising costs, not a rule that every service’s price should rise by 8%. Your own cost mix and target profit determine the rate decision.
Set a rate using cost, value, and market context
Cost-plus pricing gives you a cost-based baseline, but the baseline alone does not show whether clients will accept the price. Also consider the outcome or value your service delivers, the rates customers can find elsewhere, and your actual customer mix. SCORE’s pricing guide and Intuit QuickBooks’ overview of pricing methods describe cost-plus, competitor-based, and value-based approaches; they can complement one another.
For context, QuickBooks reported that U.S. consumer prices rose 3.8% over the 12 months ending April 2026, citing the Bureau of Labor Statistics. That historical CPI figure is not a measure of your supplier costs and does not set a recommended increase for your business.
Should you pass supplier price increases on to customers?
Consider the effect on each service rather than passing through a supplier’s increase mechanically across your entire price list. Compare the following approaches on margin recovery, customer value and price sensitivity, competitive position, ease of delivery, and any contract or notice constraints.
| Approach | When it may fit | What to check |
|---|---|---|
| Targeted increase | One or more services have had a material cost or margin change. | Confirm the affected services’ updated costs and explain why their rates differ from other services. |
| Cost-plus recalculation | You need a cost-based starting point for a rate that covers direct costs, overhead, and desired profit. | Treat the result as a baseline, not proof that clients will accept it. |
| Value-based repricing | The service’s client outcome or value is not well reflected by a price based only on time or inputs. | Make sure the price reflects the value clients receive and remains viable in your market. |
| Tier or scope redesign | Clients have different budgets or needs. | Offer a clearly defined reduced-scope option at a lower price and preserve the full or premium service at its appropriate rate. |
| Temporary transition | You want to phase in a change for selected existing accounts. | Set the end date and conditions; consider applying new rates to new customers first or temporarily grandfathering key accounts. |
| Cost reduction or supplier review | There may be room to improve sourcing, supplier terms, or operating costs before changing customer rates. | Recheck service costs and margins after any change; do not assume a particular negotiation tactic will work. |
These are options to assess, not guaranteed ways to retain customers. A lower price for a reduced scope can be clearer and more sustainable than discounting the same work, while a temporary transition should have explicit terms rather than becoming an open-ended exception.
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 advance written notice that states plainly that prices are increasing, the effective date, the new rate or structure, and any scope change. SCORE’s service-business guidance suggests 30 to 60 days’ written notice as practical advice. That is not a universal legal requirement: check each service agreement and the applicable local rules before setting or promising a notice period.
Explain briefly that supplier or operating costs have changed and remind clients of the service and outcomes they receive. Keep the new price and date easy to find; do not bury the change in an invoice or disguise it as a discount. In SCORE’s customer communication article, Utpal M. Dholakia, Professor of Marketing at Rice University’s Jesse H. Jones Graduate School of Business, is quoted as advising businesses to call it a “price increase,” not a euphemism such as a “price adjustment.”
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A simple notice structure
- Address the client by name and state that the price is increasing.
- Give the effective date and the new rate or pricing structure.
- Describe any change in what is included, if scope is changing.
- Briefly explain the cost or service context and identify the value the client continues to receive.
- State any transition terms, such as an end date for a temporary rate, and how the client can discuss the change.
How can you raise rates without losing clients?
No pricing change can guarantee that every client will stay. Reduce avoidable surprises by matching the adjustment to the service whose economics changed, making the new terms clear, and offering a real choice where appropriate. For a price-sensitive client, a lower-cost, reduced-scope tier can preserve the relationship without selling the same work below a sustainable rate. For key accounts, a limited grandfather period may provide time to transition, provided its terms and end date are explicit.
Before announcing changes, review your customer mix, service agreements, and the practical effect of each option on delivery and profit. SCORE offers free mentoring for business owners who want help reviewing their numbers; its rate guidance describes mentor support as an option.
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