How to price your services when you've been guessing for years

Most owner-operators can tell you exactly how their price was set, and most of those stories are the same story. You rang a mate in the trade, asked what he was charging, added a bit because you're better at it, and that number has been the price ever since. Materials have moved. Insurance has moved. Your own wage hasn't.

The alternative isn't complicated. It's arithmetic, done once properly, then reviewed twice a year. This is 1 of the jobs in the money block described in the guide to working on the business rather than in it, and it's the one worth doing first, because every other number in the business sits downstream of the price.

Why "what's everyone else charging" is the wrong question

Competitor pricing tells you 1 useful thing: roughly what the market will look at without flinching. It tells you nothing at all about whether that number works in your business.

The competitor you copied might run a van out of a home shed with no staff. You might run a leased unit at Regency Park with 2 employees and a service vehicle. Same job, same suburb, completely different cost base. Copying the price copies their economics onto your overheads, and their economics are invisible to you.

There's a second problem. If everybody in a trade prices by looking sideways at everybody else, the whole market drifts down towards whoever is worst at maths. Somebody quotes low because they haven't counted their own time, everybody matches it, and 3 years later the going rate doesn't cover a wage.

So use market rates as a sanity check at the end, never as the starting point.

Start with what an hour of delivery actually costs

Every price has to cover 3 things before it earns you anything: the direct cost of doing the work, a share of the overheads that exist whether you work or not, and the profit that makes the risk worth carrying.

The number that makes this workable is your cost per productive hour. It has 3 inputs.

1. Direct cost of delivery. The wage (yours included, at a real rate, not $0) plus on-costs for whoever does the work, plus consumables that get used regardless of the job.
2. Annual overheads. Rent, insurance, vehicles, software, phones, accounting, the lot. Everything the business pays for in a year that isn't materials for a specific job.
3. Productive hours. Not hours worked. Hours you can actually bill or attribute to a job. This is where owners go wrong: a 55-hour week rarely contains 55 billable hours. Quoting, chasing, invoicing, driving and fixing the printer all sit outside it.

Divide annual overheads by annual productive hours and you get the overhead each productive hour has to recover. Add the direct cost of that hour. That total is your floor. Below it you're paying for the privilege of doing the work.

Then set the margin, and work backwards

Once you have the floor, the price is a margin decision rather than a guess.

An illustration with round numbers, not a real business. Take annual overheads of $72,000 and 1,200 productive hours in the year. That's $60 an hour of overhead recovery. Add a direct delivery cost of $45 an hour and the cost per productive hour is $105. If the business needs a 40% gross margin on delivery, the price is $105 divided by 0.6, which is $175 an hour ex GST.

Change any input and the answer moves. Drop productive hours to 1,000 and overhead recovery jumps to $72 an hour, which pushes the same 40% margin price to $195 an hour ex GST. That single change, working fewer billable hours than you assumed, is the most common reason a price that looked fine on paper doesn't pay the owner.

Run the same sum for each service line rather than once for the whole business. The margin gap between 2 lines is usually the most useful thing the exercise produces, and gross margin explained for business owners covers how to read that gap and what to do about the line that's dragging.

Choose the model that fits the work

The rate is only half the decision. How you package it changes what the customer compares you against.

Hourly or day rate. Honest and simple, and it caps your income at your available hours. It also invites the customer to audit your speed, which punishes you for getting better at the job.

Fixed price per job. What most buyers prefer, because it removes their risk. It transfers that risk to you, so it only works when you know your job costs well enough to absorb a bad one. If you've never compared quoted hours against actual hours after the fact, fixed pricing is a gamble rather than a decision.

Packaged or tiered. 3 defined scopes at 3 prices. Moves the conversation from "should I do this at all" to "which of these", and gives a price-sensitive buyer somewhere to go that isn't away.

Monthly retainer. Suits ongoing work with a predictable rhythm. The trap is pricing it as hours multiplied by an hourly rate, which ignores the preparation, availability and continuity the customer is actually buying, and undercharges accordingly.

Whichever you pick, quote the scope in writing before the work starts, with what's included and what triggers a variation. Most pricing disputes in a small business are scope disputes wearing a costume.

Present the number properly

An identical price lands differently depending on how it arrives.

Send the quote quickly. In service work the fastest credible responder wins a meaningful share of jobs that were never really about price.

Give the buyer something to choose between. A single number is a yes or no. 2 or 3 options with visibly different scopes turns it into a comparison you're inside rather than one you're excluded from.

Lead with what's included rather than what it costs, and put the price after the scope, not before it. Then state your terms plainly: deposit, progress points, payment window. Terms are part of the price, and vague terms are how a profitable job becomes a cash problem, which is the mechanism profitable businesses still run out of cash goes through in detail.

Then stop apologising for the number. Owners talk themselves down in the last sentence of the quote more often than customers push back on it.

What to do when the number frightens you

Sometimes the arithmetic produces a price well above what you currently charge. That's uncomfortable, and it's also the point of doing the exercise.

You don't have to move in 1 step. The usual sequence is to hold existing customers where they are for a defined period, price every new quote at the new number, and review after a quarter. That's a decision about pace, not about whether the number is right, and raising your prices without losing your customers covers how to sequence it and what to say.

What you shouldn't do is discount back to the old figure quietly on the next 5 quotes and conclude the market won't wear it. 5 quotes isn't evidence.

Your registered tax agent handles tax. A coach works on what the business does to make the money in the first place, which is where pricing sits. If a pricing conversation turns into a question about what a law, a rule or an entitlement requires, that belongs with your accountant, your lawyer or a licensed adviser rather than a coach.

Where to start this week

Pick your single biggest service line and do the sum for that alone. Annual overheads, productive hours, direct cost, target margin. It takes about an hour with your last full year of figures in front of you.

Then check the answer against the short list of figures you should know without opening anything, because pricing only stays right if somebody is watching the inputs. The numbers every owner should know sets out what that list contains.

Then diarise the review. Twice a year, same months, so the price never again gets set by a conversation you had with a mate in a car park.