Shocking Profit – (3 of 5) The Prices Your Customers Wouldn’t Be Surprised to Pay

The short version: The test for a price increase isn’t whether your customer would be happy to pay more. Nobody is. It’s whether they’d be surprised to. Segmenting your business with the 9-Box surfaces the customers and products where price and value have quietly drifted apart, and shows you when the smarter fix isn’t a higher price at all, but a change in how you serve, schedule, or make the thing.

By Tim Van Mieghem | Founding Partner | Author of Shocking Profit & Keynote Speaker

https://youtu.be/cuM8TfkBRQE

This is the third article in a five-part series on segmenting your business to drive real EBITDA and free up capacity you already own. Article one introduced your business as a set of twins that look identical and behave nothing alike. Article two showed where you give profit back. This one is about a quieter giveaway: the money you leave on the table because your prices stopped keeping pace with the value you deliver, and nobody noticed.

Let me start by correcting a piece of advice you’ve probably heard, because it gets pricing exactly backwards.

The usual wisdom says: find the customers who’d be happy to pay more. That’s a useless test. Nobody is happy to pay more. Not you, not me, not your best customer. If “happy” is the bar, you’ll never raise a price in your life.

Here’s the test that actually works. Which of your customers would not be surprised to pay more?

Sit with that difference for a second, because it’s the whole article. A customer who’d be surprised by a higher price is someone you’ve trained to expect today’s price, and moving it carries real risk. But a customer who wouldn’t be surprised, who knows what you deliver, knows what your competitors charge, and has quietly been waiting for you to catch up, that’s a customer you’ve been underpricing. They settled the fair number in their own head a long time ago. You just never went and collected it.

Why you can’t see your own underpricing

You can’t see it because you’re looking at an average, and an average is a blanket thrown over the very places you need to look.

Every owner can quote me their overall gross margin. Almost none can tell me their margin on small customers versus large ones, or on their simple products versus their complex ones. And underpricing never shows up in the blend. It shows up in the segments: one corner of your business where the price you charge and the value you deliver have drifted apart, year after year, while your costs climbed the whole time.

Think back to the twins from the first two articles. Della is your steady, high-volume business. Tess is your lumpy, small-order, high-touch business. Here’s the trap: most companies set one price list and apply it to both girls. Tess gets charged like Della. But Tess costs far more to serve, demands more, and, crucially, her customers are usually far less price-sensitive than Della’s, because they need something specific and they need it from you. You’re giving your most demanding, least price-sensitive customers your most generous, volume-based pricing. Tess isn’t underpriced because she’s the weak twin. She’s underpriced because you’ve been pricing her like her sister.

What underpricing looks like when you actually measure it

Let me make this concrete with a company I’ll call Uniform Advantage, the custom apparel maker we’ve followed through this series.

When we ran their 9-Box and lined their products up against customer size, the pattern was almost comically clear. They charged the same prices to large customers and small ones. The same prices in wealthy areas and struggling ones. The same prices for high-volume products and one-off custom items. One price list, applied to everybody, regardless of how different those customers and products actually were.

So we modeled a careful, modest increase, just on the smaller customers and the smaller-volume products, the segments where the price was most clearly out of step with the value and the cost to serve. The result was over $170,000 a year in additional gross margin, on roughly the smallest fifth of the business. Pure profit. No new equipment, no new headcount, no lost customers. The money had been sitting in the gap between what they charged and what those customers would never have blinked at paying.

Now, why was the giveaway concentrated in the small customers and the small products? Because that’s where nobody was watching. The big accounts get scrutinized, negotiated, and reviewed. The long tail gets a price set once and forgotten, and “forgotten” is just another word for “never raised while everything around it got more expensive.”

The normalization trap

There’s a deeper reason this happens, and it’s worth naming, because it’s the thing standing between you and the money.

I write in the book about a CEO I’ll call Cynthia, who ran a company called Monumental. Cynthia had normalized a number. There was a figure in her business she’d come to treat as just “the way it is,” a given, a fact of nature. And because she’d normalized it, she couldn’t see that it was costing her. Once she questioned the norm, the opportunity was enormous: she could have made roughly $1.5 million more for an investment of about $200,000. The money wasn’t hidden by complexity. It was hidden by familiarity. She’d looked at the situation so many times it had gone invisible.

Underpricing lives in exactly that blind spot. “That’s just our price.” “We’ve always charged that.” “Our customers expect that rate.” Says who? When was that price set, and what has changed since? Your input costs have climbed. Your value has grown. Your competitors have moved. And your price has sat there, normalized, while the gap quietly widened. A price you’ve never questioned is not a strategy. It’s a habit, and habits leak money.

Pricing is one lever. It is not the only one.

Now here’s where I want to slow you down, because the moment people start talking about underpricing, they reach straight for the price gun. Raising the price is one move. It is not the only move, and often it’s not the best one.

When a segment is underwater, sometimes the right answer isn’t a higher price at all. It’s changing how you do business with that segment. You have a whole menu of non-price levers, and the grid tells you which one fits:

Change the service level. Standard lead times instead of rush. The customer who needs it tomorrow can pay for tomorrow; the one who can wait gets the standard, cheaper-to-serve promise.

Change how you schedule it. Block-schedule the predictable work and reserve flexible capacity for the lumpy, custom stuff, so Tess’s chaos stops disrupting Della’s flow.

Change make-to-order versus make-to-stock. A lumpy, unpredictable product often shouldn’t be stocked at all. Make it to order, and you stop tying up cash and capacity guessing at demand you can’t predict. We’ll go deep on this in article four.

Change the minimum order. A small custom run that loses money at any reasonable price may simply need a minimum order quantity that makes it worth doing.

Change the channel. Some small accounts are better served, and more profitably served, through a distributor than through your own high-cost direct team.

The point is this: the grid doesn’t just tell you that a segment is mispriced. It tells you why, and the “why” points you to the right lever. Sometimes that’s price. Just as often it’s service, scheduling, or how you choose to make the thing. The question is never only “what should this cost?” It’s “how should we do business with this twin at all?”

Why volatility deserves a price of its own

There’s one more source of underpricing that almost everyone misses, and it comes straight off the other grid, Volume by Volatility.

Unpredictable demand is expensive. When a product’s orders lurch around, ninety units one week, nothing the next three, you carry extra inventory to cover it, you scramble your schedule for it, and you tie up cash and capacity protecting your service level. That volatility has a real cost, and you are almost certainly eating it rather than charging for it.

So when you find a high-volatility product that you’re selling at the same margin as a steady, predictable one, you’ve found a quiet giveaway. The customer creating that unpredictability is imposing a cost on you, and either the price should reflect it, or the arrangement should change, a forecast commitment, a standing order, a make-to-order model, a longer lead time. Predictability is worth money. If a customer won’t give you predictability, the price should reflect what their unpredictability costs you.

A word before you touch a single price

When the grid lights up your underpriced segments, the temptation is to move fast and raise everything at once. Don’t. Two cautions.

First, this is not about gouging anyone. The whole frame is “what wouldn’t surprise the customer,” which is, by definition, a fair price, one in line with the value delivered and the market. We’re closing a gap that drifted open by accident, not exploiting anyone. Pricing done right is honest. Ethical profit and a fair price are the same thing.

Second, and I never let a client skip this, the salespeople who set those low prices were not doing anything wrong. They were working with the cost numbers they had, and as we saw in the last article, those numbers often lied to them. The custom job that looked profitable wasn’t, because the cost to serve was never loaded in. Truth is not a stone meant to hurl at people. Fix the pricing system, give your team better information, and watch them make better calls. Blame them, and they’ll defend the old prices to protect themselves.

Key Takeaways for PE Operating Partners Underpricing concentrates in the long tail, small customers and low-volume SKUs, where prices are set once and never revisited; the Volume by Customer Size grid isolates it quickly. The actionable test is “would the customer be surprised to pay more,” a proxy for the gap between price and delivered value plus cost to serve. Pricing is one lever among several. Service level, scheduling, make-to-order versus make-to-stock, minimum order quantities, and channel are often the better fix and protect the relationship. Demand volatility is a real, usually uncharged cost; segments with high volatility at standard margins are a recurring source of recoverable EBITDA.

Key Takeaways for Owner-Operators Stop asking whether a customer would be happy to pay more. Ask whether they’d be surprised to. If they wouldn’t, you’re leaving money on the table. Your underpricing is hiding in the segments, not the average, usually in the small accounts and small products nobody reviews. “That’s just our price” is a habit, not a strategy. Ask when it was set and what has changed since. Before you raise a price, check whether the smarter fix is how you serve, schedule, or make the thing. A fair price is one your customer wouldn’t be surprised to pay. Closing that gap is honest profit, not gouging.

Frequently Asked Questions

How do I know if I’m underpricing a customer or product?

Look at your segments, not your average. Rank customers by size and products by volume, then examine the small ones, because that’s where prices get set once and forgotten. Ask the key question: would this customer be surprised to pay more? If they know your value, know what competitors charge, and wouldn’t blink at a modest increase, you’re underpriced. Another tell is drift: if a price hasn’t changed in years while your costs rose, the gap has been widening quietly. Underpricing rarely shows up in the blended margin, which is exactly why it survives. You have to look segment by segment to see it.

What does “surprised to pay” actually mean?

It’s a practical proxy for whether your price matches the value you deliver. A customer who would be genuinely surprised by a higher price has been trained to expect today’s number, and changing it carries real risk. A customer who would not be surprised already considers your current price a bit of a bargain, they’ve quietly priced you correctly in their own head and have been waiting for you to catch up. That second group is where safe, fair price increases live. The test keeps you honest in both directions: it stops you from gouging, and it stops you from leaving easy money behind.

Should I just raise prices on my unprofitable segments?

Not necessarily. A price increase is one lever, but often it’s not the best one. Depending on why the segment is unprofitable, the better fix might be changing the service level (standard lead times instead of rush), setting a minimum order quantity, changing how you schedule the work, moving a lumpy product to make-to-order, or serving small accounts through a different channel. The 9-Box helps you see why a segment is underwater, and the “why” points to the right lever. Sometimes that’s price. Just as often it’s how you’ve chosen to do business with that part of your company.

How does demand volatility affect pricing?

Unpredictable demand costs you money. When a product’s orders swing wildly, you carry extra inventory, scramble your production schedule, and tie up cash and capacity to protect your service level. That cost is real, and most companies absorb it instead of pricing for it. If you’re selling a high-volatility product at the same margin as a steady, predictable one, you’re likely giving value away. The fix is either to price for the unpredictability or to change the arrangement: ask for a forecast commitment or standing order, move to a make-to-order model, or extend the lead time. Predictability has value, and customers who won’t provide it should bear its cost.

Is raising prices on smaller customers fair?

Yes, when it’s done to close a gap rather than to exploit anyone. Smaller customers often pay below what their cost to serve and the value they receive would justify, simply because their prices were set once and never revisited. Bringing those prices in line with the value delivered, to a level the customer wouldn’t be surprised to pay, is honest, not predatory. In fact, evenly charging small customers the same volume-based prices you give your largest ones is the real distortion. Fair pricing reflects what each segment actually costs to serve and the value it actually receives.

What number have you stopped questioning?

Come back to Cynthia for a moment, staring at a figure she’d seen so many times it had gone invisible, with a million and a half dollars hiding inside it. Her problem wasn’t complexity. It was familiarity. She’d normalized a number until she couldn’t see it anymore.

You have numbers like that too. Prices you set once, in a different year, under different costs, for customers who’ve changed, and never touched again.

So which of your prices have you simply stopped questioning? Go pull your smallest customers and your smallest products, and ask the one question that matters: would they really be surprised to pay a little more? You already know the answer for at least a few of them. Now go get curious about the rest.

If you’d like to see what this looks like inside your own operation, that’s what we do at The ProAction Group.

For the longer playbook behind this and the other value levers, the book is Shocking Profit, available at shockingprofit.com.