Updating prices under inflation: passing cost increases on to your prices

Hüseyin Bey the restaurant owner's menu

The rules described in this lesson are those of Turkish law.

Hüseyin Bey runs a tradesmen's restaurant (esnaf lokantası) in the market district. In January 2026 he had his new menu printed and hasn't touched the prices since. "I don't want to drive customers away," he says. In October, when he saw his mali müşavir's (accountant's) table for January–September, he was surprised: the restaurant is full every day, but there is almost no profit.

Keeping prices fixed under inflation means lowering them. In this lesson we look at how to pass cost increases on to prices and how often to do it.

Like the air in a tyre

A car tyre doesn't go flat in a day. It loses a little air every week, and you don't notice. One day the steering gets heavy and fuel use goes up. A driver who checks regularly never has that day.

Under inflation, the profit margin melts away in the same way. Every month a few items go up in price from suppliers, rent rises once a year, the energy bill grows. One by one they look small; the total shows up in the table months later.

Hüseyin Bey's calculation

The figures for an average portion, rounded and excluding VAT. He sells 3,000 portions a month.

From January to October both his variable and his fixed costs went up by 20%. In January he sold a portion for 400 lira: 200 lira of contribution margin (katkı payı) per portion, 3,000 × 200 = 600,000 lira of contribution a month, and 180,000 lira of profit once fixed costs were taken out.

Let's put three options for October side by side:

Three lessons come out of this:

1. Leaving the price as it is pushed the restaurant into a loss, despite the full dining room.
2. Adding only the lira difference in ingredients was not enough. Rent, salaries and energy went up too; the 200 lira of contribution per portion now has to carry bigger fixed costs.
3. If costs went up by 20% and the price also goes up by 20%, profit rises from 180,000 to 216,000, that is, by the same rate. This is not growth; it is standing still. Under inflation you have to update prices even just to stand still. You saw this side of the comparison in the lesson Comparing with last year.

The worry that "customers drop off when prices go up" is fair. Do the sums: even if sales at the 480 lira price fall to 2,700 portions a month, 2,700 × 240 = 648,000 lira of contribution, 504,000 of fixed costs, and 144,000 lira of profit remain. Far better than leaving the price alone and making a loss.

A practical rule: keep the contribution margin ratio

In January the contribution margin was half the price (200 ÷ 400). To keep this ratio, the new price is found like this:

New price = new variable cost ÷ (1 − contribution margin ratio) = 240 ÷ 0.50 = 480 lira.

This rule gives the right result when fixed costs have also gone up at roughly the same rate. If rent or salaries have gone up much faster, check the new fixed costs with the break-even calculation.

One more note for businesses that buy and sell: think about the price not according to the old purchase price of the goods on the shelf, but according to the replacement cost (yerine koyma maliyeti). If there are goods on the shelf bought for 100 lira and the supplier now wants 120, then when you sell at a price based on 100, you cannot buy the same goods again.

How often?

There is no single right frequency; but set up a routine:

• Measure every month. Write down the unit prices of the ten items you use most from your supplier invoices. Recalculate the variable cost per portion, product or service.
• Set a trigger. For example, recalculate the price if variable costs have risen by more than 5% since your last price update, or if three months have passed.
• Take small, regular steps. Waiting nine months and then putting prices up by 20% scares customers more; and the loss of those nine months doesn't come back.

For general price increases, people look at TÜİK's (Turkish Statistical Institute) consumer price index (TÜFE). In September 2026 the CPI rose 1.84% month on month and 29.73% year on year (TÜİK, 5 October 2026). If a monthly 1.84% continues for three months, prices rise by about 5.6%. But the CPI is everyone's average; your price for meat, fabric or spare parts may rise faster or slower than that. Update your price according to your own costs, and use the CPI only for comparison.

In long-term work (an annual maintenance agreement, regular sales to a wholesaler, catering for companies), write into the contract which index the price will be updated by and how often. Have your lawyer or mali müşavir review the clause.

When changing prices

• Prices on labels and menus are shown including all taxes (Price Label Regulation, Fiyat Etiketi Yönetmeliği). If you are a VAT taxpayer, do the calculation excluding VAT, then add VAT and write the price. If you are under simplified taxation, you don't add VAT; you write the price you worked out.
• Keep your cost records. Law No. 6585 regulating retail trade (additional article 1) prohibits producers, suppliers and retail businesses from making exorbitant, that is, excessive and unjustified, increases in the prices of goods and services. Passing a real cost increase on to prices is a different thing; your purchase invoices and your price calculation help you show the reason for the increase if a question comes.
• Tell your customers. A short note on the door or at the bottom of the menu is enough. Regular customers are more bothered by a sudden, unexplained increase.

In October Hüseyin Bey raised the menu by 15%; he will close the remaining gap in January. From now on, on the first Monday of every month he writes down the prices of the ten items.