Everyone is raising prices. Few have pricing power.

In August, a net 31 percent of small business owners told the NFIB they had raised their average selling prices. The historical norm for that figure is a net 14 percent. Price increases on Main Street are running at better than double the long-run rate, and they have been for most of two years. Read quickly, that looks like a story about small companies finally having pricing power. I read it the other way. Most of those increases are cost pass-throughs, made late, made nervously, and made without changing anything the customer actually experiences. That is a different muscle than pricing power, and the companies that confuse the two tend to find out the hard way.

The mistake starts with which number a founder prices off. Almost every small company I have looked at prices off one of two references: their own cost, plus a margin that feels defensible, or the competitor down the street, minus a little. Both are convenient. Both are the wrong input. Your costs are a fact about you. The competitor's price is a fact about them. Neither is a fact about the customer, and the customer is the only party in the transaction who decides what your work is worth.

I get taught this every month in the real estate business. There is no such thing as the market rent for a unit. There is a range, and the spread between the bottom and the top of that range on the identical property is routinely ten to fifteen percent. What moves a unit up the range is rarely the granite. It is how fast the unit was ready, how it shows on a Tuesday evening, whether I answer the phone within an hour instead of a day, and how quickly the first maintenance request gets handled after move-in. Almost none of that costs real money. All of it gets priced.

Dignity Living taught me the sharper version. We serve individuals with mental challenges, and families do not shop that on rate. They are not building a spreadsheet of hourly costs. They are deciding who they trust with a person they love. In a market like that, being the cheapest option is the worst position on the board, because price gets read as a statement about quality when the buyer has no other way to evaluate quality. I have watched competitors discount their way into a reputation they could not climb back out of.

Your costs tell you the floor. They tell you nothing about the price.

Anyone can raise the number. The honest test of pricing power is what happens in the ninety days after you do. Look at who leaves. If the churn concentrates in your smallest, most demanding, least profitable accounts, you had pricing power and you were giving it away. If it spreads evenly across your best customers and your worst, price was the only reason anyone was staying. That is a hard thing to learn about your own company, and it is far better to learn it on a five percent increase you chose than on the day a competitor forces the question for you.

Two things separate a real price increase from a hopeful one. The first is segmentation. Most small companies run a single price across a customer base with wildly different willingness to pay, which means they are overcharging the customers they are about to lose and undercharging the ones who would never leave, at the same time. Splitting that into two or three tiers usually finds money already sitting inside the business. The second is that you should change something when you change the price. Add the response time commitment, the reporting, the onboarding, whatever customers already ask for. The increase will hold without it. It holds better with it, and it gives your own team something to say when the phone rings.

Underpricing does not kill a company in a quarter, which is exactly why it goes uncorrected for years. It kills slowly, by removing the slack that funds everything else. In that same August survey, labor quality was the single most important problem for 23 percent of owners, ahead of both inflation and taxes. You cannot win a tight labor market on underpriced revenue. The second hire you keep deferring, the system that would stop depending on your personal heroics, the person you would pay above market to keep: all of it comes out of a margin most founders quietly gave away three years ago, closing deals they would have won anyway.

So when we diligence a company at SwellPoint, pricing is one of the first places I go, and the questions are plain. When did you last raise prices. What did you tell customers. Who left, and were they the customers you wanted to keep. A founder who has never raised prices is not automatically a red flag to me. Sometimes it is the largest piece of unclaimed value in the business, sitting there waiting, and one of the few improvements that reaches the bottom line the same month you make it. But a founder who has never tested their price does not yet know what their company is worth to the people paying for it. Finding out is usually the highest return work available, and it costs nothing but nerve.