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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 how much the cost change affects delivery, your overhead and profit goals, the value clients receive, and what the market will bear.
Start by finding what actually changed
List the supplier inputs and operating expenses that contribute to each service. Use the new delivered cost, including shipping or other charges when they are part of the work. Then account for labor and the service’s share of overhead. Overhead can include insurance, utilities, software subscriptions, taxes, marketing, transaction fees, and other indirect costs.
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SCORE’s guidance for service businesses identifies labor and materials, overhead, and profit as core elements of pricing. It also cautions that available working hours are not necessarily billable hours, so use realistic billable capacity when allocating labor and overhead (SCORE’s pricing guide).
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- Update the cost figures. Use current supplier prices and include relevant delivery or handling charges.
- Allocate labor and overhead. Include the time and indirect costs needed to deliver the service, not just the materials invoice.
- Recalculate service-level margins. Compare the current and updated cost picture for each service instead of applying one supplier increase to the entire price list.
Gross profit margin is (total sales − cost of sales) / net sales. Markup is different: it measures the amount added to cost, using cost of sales as the denominator. Mixing up the two can produce a rate that misses your intended margin (SCORE’s guide to pricing products and services).
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How much should you raise your service prices?
There is no universal pass-through percentage. A supplier’s increase may affect only a small part of one service, while labor, overhead, or other inputs may account for more of its cost. Set a new rate after seeing the service-level effect and weighing it against profit needs, customer value, market context, and demand.
David Rich of SCORE Western Connecticut uses an 8% cost increase with unchanged prices as an illustrative example of how margins can shrink. It is not a general statistic or a recommended price increase (SCORE’s article on rising costs).
Use three pricing lenses together:
- Cost-plus: Establish a cost-based baseline from direct costs, overhead, and desired profit. It helps show what a service needs to earn, but does not prove customers will accept that rate.
- Market context: Compare relevant competitors’ rates, while accounting for differences in service scope and quality.
- Client value: Consider the outcome the service delivers, not only the hours spent. A differentiated or valuable result may support a different price than a simple cost calculation suggests.
These methods can complement one another; cost-plus alone can overlook differentiated outcomes or customers’ willingness to pay (QuickBooks’ overview of pricing strategies). The same article reports U.S. CPI rose 3.8% over the 12 months ending April 2026. That is a dated broad inflation measure, not a supplier-cost index for your business and not a prescription to raise prices by the same percentage.
Choose how to respond to the cost increase
A uniform increase is only one option. Compare the choices against margin recovery, customer value and price sensitivity, competitive position, operational simplicity, and any contract or notice constraints.
| Option | When it may fit | What to assess |
|---|---|---|
| Targeted increase | Costs or margins changed materially for only some services. | Whether the affected rates recover the relevant costs without unnecessarily changing unrelated prices. |
| Cost-plus recalculation | You need a clear cost-based baseline. | Whether the resulting rate is also appropriate for client value and market conditions. |
| Value-based repricing | The service delivers a distinct client outcome that is not well reflected by time or materials alone. | How clearly clients recognize the outcome and how the proposed rate compares with alternatives. |
| Tier or scope redesign | Some clients need a lower price point, but the full service cannot profitably be offered at that rate. | Whether a reduced-scope tier preserves a useful option without discounting the same work. |
| Temporary transition | You want to phase in new rates for key accounts or apply them to new customers first. | The end date, eligibility, and conditions, so the temporary arrangement is clear. |
| Cost reduction or supplier review | You want to limit how much of the increased cost must be reflected in client rates. | Whether sourcing, supplier terms, or operating costs can be improved without compromising delivery. |
Selective adjustments, scope changes, tiers, and temporary transition options are approaches SCORE discusses for managing price changes. They are choices to evaluate, not guaranteed ways to retain clients (SCORE’s service-business rate guidance; SCORE’s article on rising costs).
Check clients, demand, and agreements before setting the date
Review the proposed rates against your actual customer mix. Consider which services clients buy, how price-sensitive those customers appear to be, and whether different tiers or scopes better match their needs. The available guidance does not establish a universal price formula or customer response for every trade or professional service; your own service costs, customer relationships, and agreements matter.
Before announcing any change, review service agreements and applicable local requirements. The legal notice required can depend on the agreement and jurisdiction; general business guidance is not a substitute for checking them.
How to tell clients your rates are going up
Give existing clients advance written notice that states plainly that prices are increasing, when the new rate takes effect, what the new rate or structure is, and whether the scope of service changes. SCORE suggests 30 to 60 days’ written notice as practical guidance for service clients, not as a universal legal requirement (SCORE’s service-business rate guidance).
Explain the value and service the client will continue to receive. You can briefly mention that supplier or operating costs have changed, but make the price and effective date easy to find; do not bury a rise in an invoice or disguise it with euphemisms. SCORE’s customer-communication guidance quotes Utpal M. Dholakia, professor of marketing at Rice University’s Jesse H. Jones Graduate School of Business: “Call the action a price increase, not a price adjustment, a price change, or another euphemism. While this may seem like a small thing, euphemistic messaging can cause serious harm, fraying the relationship with loyal customers.” SCORE attributes the quotation to a Harvard Business Review article (SCORE’s customer communication article).
Example notice
Subject: Service rate update effective [date]
We’re increasing the rate for [service] from [current rate] to [new rate], effective [date]. The service will continue to include [brief description of what the client receives]. This change reflects the current cost of delivering the service. If you’d like to discuss the available service options, please contact us by [date].
Replace the brackets with the actual rate, scope, and effective date. If you are offering a transition period or a reduced-scope option, state its terms clearly rather than implying that the existing price will continue indefinitely.
Keep the decision defensible
- Base the change on updated costs and margins for each service, not a blanket percentage.
- Use cost, market, and client-value perspectives together.
- Choose whether to change a rate, scope, tier, or transition arrangement based on the service and customer mix.
- Check agreements and local requirements before setting notice terms.
- Tell clients the price, effective date, and service details directly and in writing.
If you need help working through the numbers, SCORE offers free mentoring for business owners (SCORE’s pricing guide).
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