If your costs are rising, the way to raise prices without losing customers is to start from the numbers, not from a round percentage: know your true margin by product or customer, work out how much volume you could lose before the increase stops paying for itself, and raise prices selectively where you deliver the most value. Then tell customers early and plainly. That approach matters more than usual right now, because the cost data published this fall shows input prices climbing much faster than consumer prices.
Why are business costs rising faster than prices right now?
As of November 10, 2026, the latest government data points to a squeeze in the middle of the supply chain:
- Producer prices: The Producer Price Index for final demand rose 1.3% in September 2026 (seasonally adjusted), which the Bureau of Labor Statistics described as the largest monthly gain since March 2022. Over 12 months it was up 6.3%, with goods up 9.8% and services up 4.9%. Transportation and warehousing services were up 16.0%, and diesel more than doubled.
- Consumer prices: The Consumer Price Index rose 3.7% over the 12 months through September 2026, and 2.6% excluding food and energy.
- What businesses are reporting: In the Federal Reserve's October 2026 Beige Book, three of the 12 Districts described price growth as robust and eight as moderate. The national summary noted that "price-sensitive customers continue to resist price hikes," leaving consumer-facing firms with tighter margins.
The two indexes measure different baskets, so the gap between them is not a precise margin gauge. My read, though, is that many owners are paying more for fuel, freight and materials than they have been able to pass on. The October CPI is scheduled for release today, November 10, and the October PPI on November 13. Check both before you finalize any pricing decision, since newer data may change the picture.
How much should I raise prices to protect my margin?
The answer depends on which target you are protecting: your margin percentage or your gross profit dollars. They give different numbers.
For example, take a hypothetical $5 million distributor with a 30% gross margin, so $3.5 million in cost of goods and $1.5 million in gross profit. If its product costs rise 6%, cost of goods becomes $3.71 million, and at unchanged prices its gross margin falls to about 25.8%.
- To hold the 30% margin percentage, it needs about a 6.0% price increase (revenue of $5.3 million).
- To hold $1.5 million of gross profit dollars, it needs only about 4.2% (revenue of $5.21 million).
Neither target is right in every case. If your overhead is largely fixed, protecting gross profit dollars may be enough. If your costs are likely to keep rising, or you are growing and need margin to fund working capital, the percentage target is the safer floor.
How many customers can I lose before a price increase backfires?
This is the calculation I wish more owners ran before they make the call. With a simple break-even formula, you can find the volume you could lose and still earn the same gross profit:
Break-even volume loss = price increase ÷ (gross margin + price increase)
For the same hypothetical distributor, a 5% increase on a 30% gross margin gives 5 ÷ (30 + 5), or about 14%. It could lose roughly one in seven units of volume and still earn the same gross profit. Margin changes the answer: at a 15% gross margin, the same 5% increase breaks even at a 25% volume loss, while at a 50% margin it breaks even at about 9%. The higher your margin, the less volume you can afford to lose.
The formula leaves out variable selling costs, mix shifts and the knock-on effect on other products, so treat it as a first screen, not a forecast. It still turns a gut-feel debate into a number your team can argue about.
A 5-step playbook for raising prices
1. Find your real margin by product and customer
Company-wide margin hides the problem. Rebuild cost of goods with current supplier prices, freight and surcharges, then rank products and customers by gross profit. In my experience, a small number of accounts or SKUs usually explains most of the margin erosion.
2. Segment instead of raising everything evenly
An across-the-board increase is simple but blunt. Consider larger moves where you are hardest to replace, or where the margin has fallen furthest, and smaller ones on price-sensitive, highly visible items. The Beige Book noted that contacts were managing margins through "selective price hikes, targeted incentives, and menu changes," which is the same idea.
3. Separate temporary costs from permanent ones
When a cost spike may reverse, such as fuel, a clearly labeled surcharge can be easier for customers to accept than a permanent list-price change. The Beige Book reported that fuel surcharges were passing costs along the supply chain. Be honest about what a surcharge is for, and have a plan for removing it if the cost falls. Review the terms of any customer contract with your attorney before you change pricing mid-term.
4. Communicate early and explain the value
Give customers notice, a clear effective date and a short, plain explanation. My view is that a calm conversation with your key accounts before the letter goes out protects more relationships than any discount does.
5. Track the results weekly
After the increase, watch volume, gross margin, win rates on new quotes and customer churn against your break-even estimate. If you fall short of break-even, you will know within weeks, not at year-end, and you can adjust.
Should I raise prices or cut costs first?
Usually both, but in order. Start with the cost review in step 1, because it tells you where pricing is the real issue and where a supplier, freight or process fix would do more. Some businesses find they don't need a broad increase at all, just a repricing of a few unprofitable accounts. If that is your situation, you may not need outside help to act on it. A clear spreadsheet and a disciplined review can be enough.
Where it gets harder is when pricing ties into cash flow, bank covenants or a budget for next year. If that sounds familiar, you can see how I work with owners on pricing, margins and planning.
Bottom line
- Producer prices rose 6.3% in the year to September 2026, well ahead of the 3.7% rise in consumer prices, so margin pressure is real for many businesses.
- Decide whether you are protecting margin percentage or gross profit dollars; the required increase differs.
- Run the break-even volume calculation before you announce anything.
- Raise prices selectively, explain them plainly and measure the results weekly.
- Recheck the October CPI (Nov. 10) and PPI (Nov. 13) figures before you finalize your plan.
If you'd like a second set of eyes on your pricing and margins before you make the call, schedule a call.
Sources
- U.S. Bureau of Labor Statistics. "Producer Price Indexes – September 2026." News release, October 15, 2026. bls.gov
- U.S. Bureau of Labor Statistics. "Producer Price Index up 6.3 percent in September; largest 12-month increase since December 2022." The Economics Daily, October 21, 2026. bls.gov
- U.S. Bureau of Labor Statistics. "Consumer Price Index – September 2026." News release, October 14, 2026. bls.gov
- Board of Governors of the Federal Reserve System. "Beige Book – October 2026: National Summary." October 14, 2026. federalreserve.gov
David Montegari, CFA, is a fractional CFO and former derivatives trader with 15 years in corporate finance. This article is general information, not financial, tax, legal or investment advice for any specific business.
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