The Five Things Keeping Directors Up at Night: Rising Costs

Input costs are rising at 4.1% right now. What businesses feel able to charge for it has only gone up 2.5%.

That gap is not a rounding error. It is margin, leaving your business quietly every single month, whether you notice it happening or not.

Here is the trap. Put your prices up to match what things actually cost you and customers who are just as nervous as you are start shopping elsewhere. Hold your prices and you are absorbing the difference every single month. Neither option feels good. So most directors do nothing and hope it settles on its own.

It does not. Margin does not recover by itself.

But here is something most directors never actually sit down and work out. If your gross margin is 40% and you put your prices up by 7%, you can afford to lose 15% of your turnover and still make exactly the same profit as before. That is roughly one customer in seven, assuming they spend about the same as everyone else.

That is Mark’s maths, not an accountant’s, so do run your own numbers before you act on them. But the principle holds regardless of the exact figures. A small price rise buys you far more room than most directors assume, because it is not customers lost that matters. It is profit protected.

That is really the thread running through everything covered this fortnight. Demand uncertainty, labour costs, insolvency risk, late payments, and now margin. None of them are things you fix by working harder. They are things you get ahead of by knowing exactly where you stand and having options ready before you need them.

The directors who come through periods like this are not the ones who worried the most. They are the ones who had the right conversations early enough to still have choices.

If you have made it through all five of these and you are not sure where you stand on any of them, that is exactly the conversation worth having.

I am Mark Smillie. 07710 466166.