How to Price Your Services and Products

How the calculator works

We add your desired income to your overheads to get the total revenue your business needs to bring in. Then we work out how many hours you will actually bill in a year, based on your working days, time off, and how much of each day is genuinely billable, not admin, quoting, or travel. Divide one by the other and that is the rate you need just to hit your goals, before you have even thought about profit margin or growth. It is a floor, not a ceiling.

How to price your services, in plain English

Most service business owners pick their price the same way: they glance at what the business down the road charges, round it to a number that feels about right, and hope. It is the most expensive guess you will ever make, and pricing should not feel like a guess.

It does not need to be a dark art, either. A sustainable price has to cover four things: what it costs you to deliver the work, the time you put in, your overheads, and a profit on top. Miss any one of those and you are quietly subsidising your own business out of your own pocket. The calculator above handles the first three and shows you the floor. Everything above that floor is margin, and margin is what lets you take a holiday, hire someone, replace a vehicle, and sleep at night.

Here is the part most owners miss: you do not get paid for all eight hours of your day. Quoting, invoicing, chasing payments, travel and admin all eat into billable time. If you only bill five hours of an eight-hour day, your real rate has to carry the other three. Price as if every hour is billable and you will come up short every single week.

What are the three ways to set your price?

1. Cost-plus pricing

Add up what the work costs you, then add a margin on top. It is simple, safe and the basis for the floor this calculator gives you. Its weakness is that it ignores how much the result is actually worth to the client, so on its own it leaves money on the table for anyone selling expertise rather than hours.

2. Value-based pricing

Price on the outcome and the value to the customer, not the hours it took you. A bookkeeper who finds a client $30,000 of margin is worth far more than the time spent finding it. Value-based pricing is where skill and experience earn the most, because the client is buying the result, not your timesheet.

3. Market or competitor pricing

What will the market bear, and where do your competitors sit? Useful as a sense-check, dangerous as your only input, because it quietly anchors you to whatever the cheapest operator in town decided to charge. Most strong pricing uses all three together: cost-plus sets the floor, value-based sets the ceiling, and the market tells you where to sit in between.

How do you price products, not just your time?

If you sell products as well as services, the logic is the same but the inputs change. Start from the cost of goods sold, what each unit actually costs you landed, including freight, then apply a markup to reach your selling price. Watch the trap that catches almost everyone: markup and margin are not the same number. A 50% markup on cost is only a 33% margin on the sale price. Factor in wastage, storage, shrinkage and the time it takes to sell, not just the supplier invoice, or your best-selling product can quietly be your least profitable.

A real pattern: busy, but somehow broke

Here is a pattern we see constantly, names left out. A tradie came to us busier than he had ever been. Revenue up around 40% in two years, phone never stopped ringing. But his bank balance was flat and he could not work out why. He was working more and keeping less, and it was wearing him down.

When we ran the numbers, the whole story was in the margin. As he scaled, he had taken on bigger jobs at the same hourly rate he had set years earlier as a one-man band, while his costs, wages for two new staff, materials, fuel, insurance, had all climbed. He was earning less from every dollar that passed through the business, not more. He had never once run the floor-rate number this calculator produces, and his rate had not moved in three years.

It was entirely preventable. A simple margin and pricing review, tracking profit by job rather than just watching the top-line revenue, would have caught it a year earlier. We reset his rate, started pricing bigger work on the value and risk it carried rather than his old hourly habit, and tracked margin job by job. Within a quarter he was keeping meaningfully more, on less stress and fewer late nights. The lesson is not "charge more for the sake of it". It is that growth without pricing discipline quietly makes you busier and poorer at the same time, and the only way to catch it is to know your numbers.

Visual projection: what a discount really costs

Drop your average order value by a few percent and revenue falls by the same percent, but your profit falls by far more, because the discount comes straight off the top with none of your costs reduced. Change the numbers below and watch it happen.

Assumes the same volume and the same costs, only your price changes. In reality a price cut often also drives volume up or down, which the calculator keeps simple on purpose, to isolate the effect of price on profit.

Common pricing mistakes

• Pricing as if every hour is billable. The single most common error, and why the calculator above asks for your real billable hours.
• Never raising prices. Costs rise every year. A rate frozen for three years is a pay cut you gave yourself.
• Competing on price. There is always someone cheaper. Competing on value is how you stay in business.
• Discounting to win work. A discount comes straight off your margin, not your revenue, so it hurts far more than it looks.
• Not knowing margin by job or client. Your busiest client can be your least profitable, and you will never know without the numbers.
• Round-number anchoring. Picking a price because it "feels right" rather than because the maths supports it.

When should you raise your prices?

If you are booked out weeks ahead, if your margins are slipping, if your costs have climbed, or if you simply have not reviewed your rate in twelve months, it is time. The how matters as much as the when. Small, regular increases are far easier for clients to accept than a single large jump after years of nothing. Give notice, lead with the value you deliver rather than apologising for the rise, and remember that the clients who leave over a fair increase are usually the ones costing you the most to keep.

For a fuller picture, the Australian Government's business.gov.au guidance on business accounting and finances is a solid, independent reference, and it lines up with what every pricing specialist will tell you: know your break-even first, then price for profit.

Prefer to see the maths step by step? Our guide on how to calculate your charge-out rate works through a full example, including utilisation, markup vs margin and package pricing.

Keep reading

• Gross margin vs net margin explained, the numbers behind good pricing.
• Profit planning for small business, turning a rate into a plan.
• Employee cost calculator, what a hire really costs before you price their time.
• What a small business bookkeeper does, how the numbers get kept straight.

Download: the pricing health check

Run your pricing through this free checklist once a year, or any time you feel busy but not better off. Download the pricing health check (PDF).