Canada's inflation rate reached 8.1% year over year in June 2022 — the fastest pace since 1983 — and the pressure is broad, not narrow. Statistics Canada reported that seven of eight major CPI components rose 3% or more, so the cost increases hitting your British Columbia business are landing across fuel, materials, freight, and wages at once. The instinct of many owners is to grit their teeth and absorb the increases to protect customer relationships. That instinct, applied across the board, quietly destroys the business. The right response is not absorption and it is not a blunt across-the-board price hike — it is a deliberate, segmented pricing strategy. This post lays out how to protect your margin while keeping the customers worth keeping.
Why absorbing inflation is the most dangerous option
Margin compression is multiplicative, and that is what makes silent absorption so corrosive. When your costs rise but your prices do not, the gap comes straight out of net profit — the thinnest line in the business. A company running a 10% net margin does not have much room before a broad cost increase erases it entirely.
Consider the arithmetic of recovery. If you absorb a cost increase and your net margin falls, the extra sales volume required to earn back the lost profit is far larger than the percentage you gave up — because you only keep a fraction of each new sales dollar. Absorption does not preserve the customer relationship at a small cost; it preserves it at a cost that compounds every month it continues.
The percentage-point trap most owners fall into
Here is the most common and most expensive pricing error: confusing markup with margin, and raising prices by the percentage your costs rose rather than by the amount needed to hold your margin.
If a cost rises 8% and you raise your price 8%, you do not preserve your margin — you preserve your dollar markup, which is a different and smaller thing. Holding a gross margin percentage when costs rise requires a price increase larger than the cost increase, because the price has to cover both the higher cost and the margin layered on top of it. Owners who reflexively "pass on the 8%" slowly lose margin even while raising prices, and cannot understand why profit keeps thinning.
A worked example: holding the margin line
Consider Fraser Valley Print Co., a Langley commercial printer. A core job has a selling price of $1,000, direct costs (paper, ink, labour) of $600, and a gross margin of $400, or 40%.
Scenario A — absorb the cost increase. Input costs jump 12% with inflation, so direct costs rise from $600 to $672. Fraser Valley holds the price at $1,000 to avoid upsetting clients. Gross margin falls from $400 to $328 — a 32.8% margin, down more than seven points. Across a year of similar jobs, that is a substantial profit reduction earned by doing nothing.
Scenario B — raise the price by the cost increase (12%). Costs are $672; price rises 12% to $1,120. Gross margin is now $448 — better in dollars, but the percentage is $448 / $1,120 = 40.0%... only because the cost rose proportionally to the original margin. In practice, when costs rise faster than price across a mixed job book, a flat "match the cost increase" rule leaves margin slipping. The point stands: matching the cost percentage is not a reliable way to hold the margin percentage.
Scenario C — price to restore the 40% margin deliberately. To keep a 40% gross margin on $672 of cost, the price must be $672 / (1 − 0.40) = $1,120, giving a $448 margin at exactly 40%. Fraser Valley sets the price from the target margin, not from the cost change, and confirms the math. The discipline is the takeaway: derive the price from the margin you intend to keep, then test it against the market — never let the cost increase alone dictate the new price.
The difference between Scenario A and a margin-anchored price is roughly $120 of gross profit on a single $1,000 job. Multiply that across the order book and the question stops being "will clients mind?" and becomes "can the business survive the alternative?"
How to raise prices without losing the customers worth keeping
Segment, do not broadcast. A blunt across-the-board increase invites every customer to reassess at once. A segmented approach protects margin where you have pricing power and protects relationships where you do not.
- Map price sensitivity by product and customer. Some lines and clients are price-inelastic — they value speed, reliability, or specialization over a few percent. Raise there first and fully.
- Lead with value, not apology. Tie increases to the genuine reasons — material, freight, wage costs — and to what the customer still gets. Confident framing holds; apologetic framing invites negotiation.
- Use structure, not just rate. Smaller, more frequent adjustments; minimum order sizes; fuel or materials surcharges that move with the underlying cost; tiered options that let price-sensitive buyers self-select to a lighter package — all protect margin with less shock than one big number.
- Protect your best customers explicitly. Give your most valuable, loyal clients notice, a rationale, and perhaps a slightly gentler curve. Losing a marginal price-shopper to a competitor is fine; losing an anchor client is not.
- Trim cost quietly in parallel. Renegotiate supplier terms, reduce waste, and review your own low-margin SKUs. Pricing and cost discipline together do what neither does alone.
Frequently asked questions
If I raise prices, won't I just lose customers to competitors? Some — and that is acceptable if they are your least profitable, most price-driven buyers. Your competitors face the same 8% inflation; few can afford to absorb it indefinitely either. Segment so you raise hardest where loyalty and value are strongest.
How often should I revisit pricing in this environment? More often than the once-a-year habit. With broad-based inflation, smaller quarterly adjustments are easier for customers to absorb than one large annual jump and keep your margin from drifting between reviews.
Should I add a surcharge or just raise the base price? A transparent surcharge tied to a real input (fuel, materials) can rise and fall with the cost and signals fairness; a base-price increase is simpler and stickier. Many businesses use both — a surcharge for volatile inputs, base pricing for structural cost.
Key takeaways
- Inflation reached 8.1% in June 2022, the highest since 1983, and it is broad-based — costs are rising across nearly every category at once.
- Absorbing increases silently compresses margin multiplicatively and requires disproportionate extra volume to recover; it is usually the most expensive option.
- To hold a margin percentage, derive the new price from the target margin, not from the cost-increase percentage — matching the cost rise quietly erodes margin.
- Raise prices by segment: fully where you have pricing power, gently and explicitly for anchor customers, and never as one blunt across-the-board number.
- Pair pricing discipline with quiet cost reduction and structural tools — surcharges, tiers, smaller frequent adjustments — to protect both margin and relationships.
In an inflationary year, the business that refuses to raise prices is not being loyal to its customers — it is quietly funding their costs out of its own survival.
If you want help building a margin-anchored pricing model and identifying where your real pricing power sits, RN Canada offers pricing, margin analysis, and fractional CFO support to established BC businesses. Let us protect your margin before another quarter of inflation does the deciding for you.