Price a service for profit

A service price must cover delivery time, direct costs, overhead, selling effort and an appropriate return for risk.

Diagnose the real decision

Estimate the full hours per job, including quoting, revisions, travel and administration. Add direct costs, a fair share of overhead and an allowance for rework. Compare this floor with what a defined customer values.

Put it into practice

Test a fixed-scope offer with explicit exclusions. Track actual hours and gross profit for ten jobs; adjust the scope or price when work regularly overruns.

Worked example

A $1,000 job with $300 of direct costs and ten hours of owner time is not a 70% profit margin. Owner labour and overhead still have to be paid.

What can go wrong

Copying a competitor’s price without knowing their cost structure can turn growth into a cash drain.

Use this in the next seven days

Write the outcome and deadline in one sentence.
Collect the evidence or document named above.
Ask a relevant colleague, manager or adviser to challenge one assumption.
Set a review date and record what changed.

Source and verification

Primary Australian reference. The practical method and examples are editorial guidance. Check the linked source for current rules and details that apply to your situation.

Calculate contribution before profit

Price minus direct materials, subcontractors and delivery labour gives gross profit per job. Then pay for quoting, sales, software, rent, insurance, administration, tax compliance and management. Owner time is an economic cost even if the founder does not take a wage.

Watch scope creep

Write exactly what is included, how many revisions are allowed and what changes trigger a variation. Track actual labour for a sample of jobs, including travel and warranty rework. If the average job takes 12 hours rather than eight, a small quoted margin may disappear.

Compare the customer’s alternative

Cost-plus sets a floor; customer value and competitive alternatives set the feasible price. If the market will not pay above your cost, redesign delivery, target a different segment or decline the work. Winning more low-margin jobs rarely solves an uneconomic model.