The short answer. Your prices are right when three tests pass. Realized Gross Margin equals Intended Gross Margin. Breakeven Sales Volume against your pricing sits at or below current sales. Minimum Mandatory Profit is fully funded when the pricing model runs against delivered productivity, not intended. If any test fails, the prices are wrong regardless of whether the customers are complaining.
Test 1: The Cascade Check
Every pricing model assumes a labor productivity ratio, a materials cost, and a delivery efficiency. When actual delivered productivity runs below intended, the cascade effect converts the gap into margin erosion on every job. Not some jobs. Every job.
Run the math. If your pricing assumes 85 percent labor productivity and the crew delivers 71 percent, every paid hour produces roughly 16 percent less booked revenue than the pricing modeled. That gap converts to lost margin at your blended labor rate multiplied by paid hours. In a typical trades business, it can run 8 to 14 percent of gross revenue.
This is exactly the pattern in the landscape company field note. The pricing model looked right on the bid ticket. The margin never showed up in the P&L.
Test 2: The Breakeven Check
Run Layer Cake against current pricing. Layer 5 Breakeven Sales Volume is the revenue number the business must hit to fund MMP at the current pricing model.
If Breakeven exceeds trailing-twelve-months sales, the pricing is wrong at current volume. Not tomorrow. Now. Every month that runs below breakeven is a month subtracting from working capital.
The fix is not always price increases. Sometimes it is portfolio reshape (drop the two lowest-margin recurring jobs), sometimes it is cost restructuring (renegotiate a supplier contract), sometimes it is pricing (raise the base rate). The diagnostic tells you which of the three to attack first.
Test 3: The MMP Check
Restate MMP against current interest rates, current supplier terms, and current working capital cycle. Include Owner Compensation at market rate.
Ask: at current pricing, will the business generate enough pre-tax profit to fund the restated MMP? If yes, pricing is on the floor. If no, pricing is below the floor.
Most owners never run this test because their MMP is calculated once, at the beginning of the year, and treated as a fixed target. It is not fixed. It moves with every material change in the cost structure. If the pricing was right in January and MMP has moved by June, the pricing is wrong in June.
Frequently Asked Questions
What if my customers say my prices are too high?
Customer complaints are one data point, not a diagnosis. If your Breakeven, MMP, and Cascade tests all pass at current pricing, the complaint is either negotiation posture or a customer at the wrong scale for the business. If any test fails at current pricing, the complaints are irrelevant because the pricing cannot be lowered without breaking the business.
How often should I raise prices?
Raise the base rate whenever restated MMP requires it, which usually means at least once a year in a normal environment and more often in periods of input cost volatility. Do not raise reactively. Raise diagnostically.
Can I test pricing on new customers first?
Yes and this is often the safest path. New pricing on new work builds the case. Then apply to renewals as they come up. Avoid bulk repricing of a book without a defensible read of what the market will bear.
What if I raise prices and lose customers?
Losing the lowest-margin 10 to 15 percent of customers after a price increase is usually a portfolio improvement, not a loss. If you lose the highest-margin customers, the increase was too aggressive or delivered badly. The diagnostic tells you the difference.