How to price your services so every job pays

Pricing is the decision that shapes everything else in a service business, and it is usually made by looking at what competitors seem to charge and shaving a little off. The trouble is that you cannot see their costs, their hours or whether they are making any money at all. Copying their price copies their problems.

A better approach starts from your own numbers. It is not complicated, and once it is done you will know, for any job, whether the price pays.

Start with what the business must earn

Before any hourly rate or job price, work out what a year needs to cover.

1. Your pay. What you need to draw from the business, as a salary, before personal tax.
2. Your overheads. Everything the business costs to run regardless of workload: rent, insurance, vehicles, equipment, software, phone, accountant, marketing.
3. A profit. Not your pay, but the business's cushion: for slow months, new equipment, growth and the unexpected.

Add pay and overheads together, and you have the floor: the amount the year must bring in before there is any profit.

Count the hours you can actually bill

This is where most pricing goes wrong. A full-time week is not a full week of billable work. Some of every week goes on quoting, travel you cannot charge, admin, buying materials, chasing payments and learning. Holidays and sick days take more.

Be honest about it. Take your working weeks in a year, multiply by the hours you work, then by the share of those hours a client actually pays for. For many owner-operators that share is well under the total, and the true figure is the one to price from.

Turn it into a rate

Divide the floor by your billable hours and you have your break-even rate: charge less and you lose money, even when you are busy. Add your profit margin on top and you have the rate to charge.

The free hourly rate calculator does this arithmetic with your own figures, and shows the day rate too.

Margin and markup are not the same

When you price materials or subcontracted work, you add a percentage on top. Be clear which percentage you mean, because the two measures of the same profit give different numbers.

• Markup is profit as a share of the cost. A $600 job sold for $900 is a 50% markup.
• Margin is profit as a share of the price. The same job is a 33.3% margin.

Confusing the two is a classic way to underprice: aim for a "30% margin" by adding 30% to cost, and you actually get a 23% margin. The profit margin calculator converts between them.

Fixed prices are built from the rate

Many clients prefer a fixed price for the whole job, and many businesses do better with them: the client buys an outcome, not your hours, and you keep the benefit when you work efficiently. The hourly rate is still the foundation. Estimate the hours honestly, including the unbillable ones the job causes (the extra visit, the supplier run), price them at your rate, add materials at your markup, and add a contingency for the unknowns the job carries.

Check the price against the job afterwards

A pricing method is only as good as its feedback. After each job, compare what you quoted with what it really took: the hours, the materials, the extra visits. If the same kinds of jobs keep running over, the problem is the estimate, not bad luck, and the next quote should change. Recording costs against each job as you go is what makes this possible; our article on job costing explains how.

Set a minimum charge

Small jobs carry the same fixed effort as large ones: the call, the quote, the travel, the invoice. Price them purely by the hour and they quietly lose money. A minimum charge, or a call-out fee that covers the first hour and the journey, keeps small work worth doing. State it on your website and in your first reply, so nobody is surprised.

Know your break-even point

Your rate tells you what an hour must earn. Your break-even point tells you how much work a month you need. Take your monthly fixed costs and divide by what an average job contributes after its own direct costs. The answer is the number of jobs you need before the month makes a profit. The break-even calculator works it out.

Packages and retainers

Not everything has to be priced by the job. Two other structures suit many service businesses.

• Packages bundle a defined set of work at one price: a block of ten sessions, a seasonal maintenance plan, a brand identity with three rounds of revisions. Clients like the certainty, and you can price the bundle so the regular, predictable work subsidizes the effort of selling it.
• Retainers charge a fixed amount each month for an agreed level of availability or work. They smooth cash flow, but only work if the scope is written down, including what happens when the client wants more than the retainer covers.

Both are built from the same foundation: your real hourly rate, multiplied by an honest estimate of the hours, plus your margin.

Talking about price with clients

How you present a price matters almost as much as the number.

• Lead with the outcome, then the price. The client is buying a finished kitchen, not your hours.
• Show the breakdown on anything large, so the client can see what the money buys.
• Do not apologize for your price, and do not discount the moment a client hesitates. Ask what concerns them first; it is often the timing or the scope, not the total.
• Offer a smaller option rather than a lower price for the same thing. Cutting scope protects your margin; cutting price does not.

When to raise your prices

Raise prices when your costs rise, when you are consistently fully booked, when you win almost every quote (a sign you are cheaper than you need to be), and at least once a year as a matter of course. Tell existing clients ahead of time, explain briefly, and apply the new price from a set date. Most clients expect it; the ones who leave over a fair increase were usually your least profitable.

How grewray helps

grewray keeps pricing honest after the quote goes out. Your rates and items are saved once and used on every quote, tax is applied per line, and every job shows what was quoted, invoiced and spent side by side, so you can see the real margin while the job is still running.

See jobs and invoicing, or start with the free tools.