5 min read · 721 words
At a glance
- A price set on last year’s cost is a decision you are still making without knowing it. When input costs climb and the price holds, a former winner turns into a loser quietly.
- At one $25M consumer products manufacturer, a wrong input cost distorted a whole month by roughly $364,000. When real cost is invisible, so is the price you should be charging.
- Repricing to current cost is fast, high-return work: it drops straight to earnings, and earnings is the number a buyer multiplies. A more valuable company and the numbers to prove it.
Price off today’s cost, not last year’s, because the line still priced on old cost is bleeding and nobody decided to let it happen. It is one of the most common and most fixable ways value leaks out of a business. This piece is about how the drift happens and how to catch it before a buyer, or your own margin, does.
How does a price drift out of date?
Slowly, which is why it survives. You set a price against a cost, the price works, and it becomes the default. Then inputs creep up, a supplier raises a line item, a process gets more expensive, and the price stays exactly where it was. No single change is large enough to notice. The cumulative gap is large enough to erase the margin.
The reason nobody catches it is that the books were built to record what was charged, not to compare the price to the cost as it moves. So the drift compounds silently, and a line that used to be a winner becomes a loser without anyone making that call.
Why is stale pricing so dangerous?
Because it hides inside a healthy-looking average and because it can be masked by a bad number. At the $25M manufacturer, a single wrong input cost distorted a month by roughly $364,000, briefly making a losing month look like a record. If your cost data is wrong or stale, your pricing decisions are built on fiction. You cannot price to a cost you cannot see.
And stale pricing is self-reinforcing. The line looks fine on the blended margin, so it never gets attention, so the price never gets revisited, so the bleed continues. It takes someone deliberately comparing price to current cost to break the loop.
How do you reprice to reality?
A short, repeatable discipline:
- Rebuild each line’s cost at today’s inputs. Not last year’s standard, not a guess. What it actually costs to make or deliver now.
- Compare price to current cost, line by line. The gaps are where the money is, in both directions.
- Fix the worst-priced line first. One or two lines usually explain most of the leak. Concentrate there.
- Set a cadence to re-check. Costs keep moving, so pricing has to be a rhythm, not a one-time event.
- Document the new cost basis. A buyer, and your own team, should be able to see the price was set on purpose.
None of this is a growth initiative. It is charging what the work actually costs plus your margin, on purpose.
Why a buyer pays for it
Because a business that prices off current cost is a business that defends its own margin, and a buyer pays a premium for that over one running on prices set years ago. Recovered margin is pure earnings, and earnings gets multiplied. Repricing to reality is quiet work that shows up loudly in the price: a more valuable company and the numbers to prove it.
Where this leads
Pricing is one of the three earnings levers in the two numbers behind the price, and it compounds with margin: a few points of margin, run through a multiple. It starts with seeing the truth: which job, product, or customer actually makes money and why the numbers must be built to decide from, not just to record.
The Sellable-Numbers Scan rebuilds cost at today’s inputs and dollarizes the repricing opportunity, in 14 days, guaranteed: at least 3x the Scan fee in owner-accepted value identified, or you pay nothing.
If that is the question in front of you, book a fit call. Thirty minutes, no pitch.
Russell Fette · Decisive Finance · Creator of Financial Rhythms™