If your costs rose by 25 percent over the past four years but your prices rose by 15, where did the missing 10 points go? For a great many British Columbia businesses, the answer is the same: straight out of gross margin, absorbed quietly to keep customers comfortable through an uncomfortable period. That instinct was defensible during the inflation spike. But inflation has normalized while the cost base has not retreated — input prices, financing, and especially labour have settled at a permanently higher level, with the BC minimum wage rising again to $18.25 on June 1, 2026. The era of absorbing cost is over. The work now is to rebuild pricing power deliberately, without the panic that produces blunt across-the-board increases.
This post sets out how to diagnose where margin actually leaked, how to raise prices in a way customers accept, and a worked example of why a small, disciplined price move outperforms a frantic cost-cutting drive.
Why margins eroded — and why "the market" is not the reason
Through 2022 and 2023, owners faced rising input costs, a minimum wage climbing year over year, and borrowing that briefly cost 8 to 9 percent all-in. The path of least resistance was to hold list prices, or raise them timidly, and let margin take the strain. Each individual decision felt prudent. Cumulatively, they reset many businesses to a structurally lower margin without anyone ever deciding that was acceptable.
The important reframe: most lost margin is not a market verdict that your product is worth less. It is an internal accumulation of small concessions — discounts left in place, price lists not updated, scope quietly expanded, freight and surcharges absorbed. That is good news, because internal problems are ones you can fix without permission from the market.
Diagnose before you price: where did the margin go?
Resist the urge to announce a blanket increase. First, find the leaks. Run a margin diagnostic across your real transaction data:
- Margin by product and service line. Almost always, a minority of lines carry most of the profit and a tail of lines barely break even — or lose money once you load them properly.
- Margin by customer. Your largest customers frequently have the lowest margins, having negotiated terms years ago that no longer reflect your cost base.
- Discount leakage. Tally the gap between list price and realized price. Discretionary discounts granted "to close the deal" and never reviewed are pure recoverable margin.
- Cost-to-serve. Some customers consume disproportionate service, freight, and rush handling that never made it into their price. Loading these costs reveals who is actually profitable.
This diagnostic usually shows that you do not need a uniform increase. You need targeted corrections: reprice the loss-making tail, fix the discount-leaking accounts, and recover cost-to-serve where it is being given away.
How to raise prices customers accept
Pricing power is partly a number and partly a conversation. A few principles that make increases stick:
- Segment, do not blanket. A 4 percent move on price-insensitive lines and key accounts may recover more margin than a 10 percent move that triggers churn on price-sensitive ones. Match the increase to each segment's willingness to pay.
- Tie the increase to value, not apology. Frame around what the customer receives — reliability, lead time, quality, service — rather than "our costs went up." Cost-based justifications invite customers to audit your costs; value-based ones do not.
- Use structure, not just level. Minimum order quantities, freight terms, surcharges for rush work, and tiered pricing recover margin without raising headline prices, and are often easier for customers to accept.
- Move first on the least price-sensitive. Start where elasticity is lowest to prove the increase holds, then extend.
- Hold your floor. Decide in advance the discount you will not go below, and equip your team to walk away from business priced under it. Margin discipline is enforced at the point of sale, not in the boardroom.
Worked example: a 3 percent price increase versus a cost-cutting scramble
Consider a BC distributor with $5,000,000 in annual revenue, a 30 percent gross margin ($1,500,000), and operating costs of $1,200,000, leaving $300,000 of operating profit — a 6 percent operating margin that has drifted down over four years of absorbed cost.
Scenario A — Riverside Distribution Ltd. recovers price with discipline. After a margin diagnostic, Riverside implements a targeted average 3 percent price increase, concentrated on its loss-making tail and discount-leaking accounts, and loses only about 1 percent of volume to it. Revenue rises to roughly $5,100,000, and because the increase is almost pure margin, gross profit climbs by about $150,000. After the modest volume loss, operating profit moves from $300,000 to roughly $430,000 — a 43 percent increase in profit from a 3 percent move on price. Price increases flow disproportionately to the bottom line precisely because there is little incremental cost behind them.
Scenario B — Summit Wholesale Inc. chases the same gain through cost-cutting. Summit refuses to touch price and instead tries to find the same ~$130,000 of profit by cutting operating costs. To add $130,000 to the bottom line it must remove $130,000 from a $1,200,000 cost base — roughly an 11 percent across-the-board cut. In practice that means reducing service levels, delivery frequency, or staff, each of which risks the customer relationships and reliability that justify its pricing in the first place. The cuts are painful, partly self-defeating, and the gain is fragile.
The asymmetry is the whole point: on a 30 percent-margin business, a 3 percent price increase delivers what an 11 percent cost cut would — with far less operational damage. Pricing is the highest-leverage lever most owners use the least.
Protect the gains: making margin recovery durable
A one-time increase erodes if the discipline behind it does not persist. To make recovery durable:
- Index where you can. Build annual price reviews into contracts and quotes so you are not starting from zero each year against a still-rising cost base.
- Review discount authority. Limit who can grant discounts and require a margin floor on every quote, so leakage does not quietly return.
- Re-run the diagnostic annually. Customer mix, cost-to-serve, and the cost base all drift. A yearly margin review keeps the leaks from reopening.
- Watch wage-driven cost creep. With the BC minimum wage now CPI-indexed and rising every June 1, your labour cost base rises predictably; your pricing should rise to meet it rather than absorb it again.
Key takeaways
- Most eroded margin is internal leakage — absorbed cost, stale discounts, unpriced cost-to-serve — not a market verdict, which means it is recoverable.
- Diagnose before pricing: margin by product, by customer, discount leakage, and cost-to-serve reveal targeted corrections, not a blanket increase.
- Raise prices by segment and value, use structure as well as level, and hold a firm discount floor.
- On a 30 percent-margin business, a 3 percent price increase can lift operating profit far more than a punishing cost cut would.
- A permanently higher cost base — including the June 1, 2026 minimum wage at $18.25 — means margin recovery must be ongoing, not a one-time event.
Cutting cost is fighting for the same margin twice; pricing it correctly wins it once and keeps it.
If you want a margin diagnostic and a segmented pricing plan built from your own transaction data, RN Canada's advisory team partners with BC owners as fractional CFO support to recover the margin that years of cost pressure quietly took.