Businesses more confident about growing sales than raising prices

• Suggests businesses may struggle to pass on Autumn Statement tax and minimum wage rises to customers.
  
• Survey of 750 Finance Directors.

Businesses are on average more optimistic about increasing their revenues from sales over the next year than putting up prices, according to research by Price Bailey, the Top 30 firm of accountants.

Price Bailey surveyed 750 Finance Directors who work for business with a turnover of £10m-100m, asking them about projected sales volumes and the prices of the goods and services they provide. The full report can be found here.

According to Price Bailey, the survey suggests that mooted tax and minimum wage increases in the forthcoming Autumn Statement are likely to erode profit margins as businesses struggle to pass higher costs on to customers.

The results revealed that in certain industries there are some clear disparities between finance directors’ growth expectations and how they expect their businesses to hit their revenue targets. This suggests that price elasticity continues to be significantly uneven by industry.

For example, in the case of architecture, engineering and building, 34% more finance directors expect to see an increase in revenue via sales growth compared with those forecasting increased prices for goods and services.

Chand Chudasama, Partner in the Strategic Corporate Finance Team at Price Bailey, comments:

“It is encouraging to see that UK businesses are generally optimistic about their prospects of revenue growth over the next year.”

“The research suggests that the plan for achieving growth is ‘work harder’. There is limited evidence that creating value through the product or service mix to capture higher pricing is part of the plan. Certain industries have a clearer strategy than others for hitting their revenue targets. In some industries, businesses do not appear to be sufficiently targeting output, and price rises as strategies for growing their top line.”

“It is likely that the Autumn Statement will increase the cost of doing business and those costs will eat into operating profits for many businesses. Businesses in sectors as hospitality and retail are already walking a balance sheet tightrope and will struggle to realise growth if that comes at the expense of already thin profit margins being further eroded.”

In the year ahead, will your prices or volume sold increase or decrease when thinking about driving your revenue changes? (By industry)

The regional perspective

In some regions of the UK, the research highlights a gap between those businesses that are anticipating a revenue uplift and those that are expecting to increase their volume and prices of goods and services over the next 12 months.

In the West Midlands, for example, 39% more finance directors expect to see an increase in revenue compared with those forecasting increased prices for goods and services. Similarly, 36% more finance directors in the region expect higher revenues compared with those who believe that their business will sell more output.

This gap is also evident in the East Midlands, Greater London, the North West, the West Midlands, and Wales.

In Scotland and the South East, the data highlights that businesses will focus significantly more on selling products and services over the next 12 months to hit their revenue goals, rather than on raising prices. Overall, 80% of Scottish finance directors and 55% of finance directors based in the South East expect their business to produce greater output. In contrast, 57% (Scotland) and 39% (South East) anticipate hiking up prices.

Chand Chudasama says:

“The research also highlighted some individual regions where finance directors are more likely to anticipate revenue growth than to predict that their business will sell more goods or services or increase its prices. These findings mirror other findings in the research – specifically that finance directors in the North are less optimistic than their southern peers about their business’s ability to increase the volumes and prices of its products and services.”

He adds: “While the Government cannot necessarily accommodate the needs of different industries and regions in the Budget, it should be sensitive to the fact that not all businesses are equally well positioned to take advantage of the UK’s economic recovery. Businesses’ ability to sell more products and services and increase their prices can vary significantly according to their industry and location.”

In the year ahead, will your prices or volume sold increase or decrease when thinking about driving your revenue changes? (By region)

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