How to Price Services Profitably
Sustainable service pricing starts with realistic costs.
Build the cost
Include labour, materials, overhead and non-billable time with a defensible allocation.
Markup versus margin
A $60 cost sold at $100 yields 40% gross margin but around 66.7% markup. These percentages are different.
Factor capacity
Cancellations, administration and seasonality mean theoretical working hours exceed billable hours.
Test the price
Model the effect of lower volume at a higher rate, and assess profit as well as revenue.
Build a realistic hourly rate
Suppose your business incurs $3,000 of monthly overhead and you can bill 100 hours. Allocating those expenses implies $30 of overhead per billable hour before direct labour, supplies and profit.
Do not divide by theoretical working hours if administration and cancellations make some hours unavailable for paid work.
Test whether the margin is sufficient
A $100 service with $65 in total relevant costs leaves $35 before remaining adjustments. Check which costs were included, whether taxes apply and how utilisation changes the result.