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Most owners set a price by looking at a competitor and shaving a bit off. That is how you end up busy and broke. Put your real numbers in and see the three prices that matter: what a job costs you, what you break even at, and what you need to charge to actually make money.
Overhead is everything you pay whether or not a job comes in: rent, insurance, phone, software, the truck payment. Your hourly worth is what you would have to pay somebody else to do the work, not what is left over at the end.
This is the number almost nobody works out. Raising a price does not mean keeping every customer. It means you can afford to lose some and still take home the same money.
Three mistakes come up again and again when we look at an owner's numbers.
Sara cleans houses. Each job costs her $35 in supplies, takes 3 hours, and she values her time at $40 an hour. Her overhead is $2,100 a month and she does 45 jobs a month. She wants a 20% margin.
| Supplies | $35.00 |
| Her time, 3 hours at $40 | $120.00 |
| Overhead share, $2,100 over 45 jobs | $46.67 |
| True cost of one job | $201.67 |
| Price at 20% margin | $252.08 |
Sara was charging $185. She was losing $16.67 on every house and did not know it, because the overhead never appeared on any job sheet. At 45 jobs a month that is $750 a month walking out of the door.
true cost = materials + (hours x hourly rate) + (monthly overhead / jobs per month)
price at margin = true cost / (1 - margin)
Margins vary enormously by trade, so treat these as orientation rather than a target. A service business with low materials cost can carry a higher margin than a business reselling parts. What matters more than the industry average is whether your price covers your true cost, which is what the calculator above works out.
| Under 0% | Losing money on every job |
| 0 to 10% | One slow month from trouble |
| 10 to 20% | Working, with no room for error |
| 20 to 35% | Room to invest, hire, absorb a bad month |
What is the difference between markup and margin? Markup is a percentage of your cost. Margin is a percentage of your price. If a job costs $100 and you add 20% markup, you charge $120, and your margin is 16.7%. To get a true 20% margin on a $100 cost, you charge $125. Mixing these up is the single most common pricing error we see.
How do I include my own wage? Put what you would pay somebody else to do that work into the hourly rate. If you would pay a technician $30 an hour, your time on the tools costs the business $30 an hour. Profit is what is left after that, not instead of it.
Should I match my competitor's price? Only if you know their costs, which you do not. A competitor can be cheaper because they are more efficient, because they buy better, or because they are quietly going out of business. Price off your own numbers.
How do I allocate overhead to a job? The simple version, used above, is monthly overhead divided by jobs per month. If your jobs vary a lot in length, divide overhead by billable hours a month instead, then multiply by the hours the job takes.
What if the honest price is higher than the market will pay? Then the problem is not the price, it is the cost or the volume. Either the job takes too long, the materials cost too much, or the overhead is too heavy for the work coming in. Raising the price without fixing that just moves the problem.
Most owners price by looking at a competitor and shaving a little off. A price built from your own costs is the only one you can defend.
A competitor can be cheaper because they are more efficient, because they buy better or because they are quietly losing money. You cannot see their costs, so matching them tells you nothing about your own profit.
The three prices in the tool answer three different questions: what the job costs, where you break even and what you must charge to earn the margin you want.
Overhead is the cost people forget: rent, insurance, phone, software and the truck payment. It is paid whether or not a job comes in, so every job has to carry a share of it.
The 10 percent test shows the other side. Example math, assuming all your costs rise and fall with each sale: if $100 of revenue leaves $20 profit, raising the price 10 percent gives $30 profit per $100 of old revenue, so you could lose about one customer in three and still earn the same.
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