Contents
- Step 1: Add up what it costs to run the business for a year
- Step 2: Work out what a technician hour really costs you
- Step 3: Count billable hours honestly
- Step 4: Calculate your billable hourly rate
- Step 5: Mark up materials, and know markup from margin
- Step 6: Pick the right pricing model for each kind of work
- Step 7: Add the fees that protect your time
- Step 8: Check your prices against the market, without copying it
- Step 9: Present prices with confidence
- How to raise your prices
- Pricing checklist
Plenty of service businesses set their first prices by asking what the other guy charges. The trouble is, you don't know his costs, his debts or whether he'll still be in business next year. Your prices have to cover your costs, pay you properly for your skill, leave profit for new trucks and slow months, and still be a price customers will pay. Here's how to build them from the ground up, then check them against the market.
The numbers in this guide are made up to show the method. Use your own books, and have your accountant check the result before you change your prices.
Step 1: Add up what it costs to run the business for a year
Overhead is everything you spend that isn't the labor and materials for a specific job. Pull last year's numbers from your books, then adjust for what you know is coming.
Don't leave your own salary out. If your prices only work because you don't pay yourself, they don't work.
Step 2: Work out what a technician hour really costs you
A tech's wage isn't what that tech costs you. The loaded labor cost adds payroll taxes, workers' compensation insurance, benefits, paid time off and anything else tied to employing them. Ask your accountant or payroll provider for your real figures, because they vary by state, trade and business.
Here's an example with made-up numbers. A tech earns $30 an hour for 2,080 paid hours a year: $62,400. Say payroll taxes, workers' comp, health insurance and paid time off add $17,600 in your books. That tech's loaded cost is $80,000 a year.
Step 3: Count billable hours honestly
Paid hours and billable hours are not the same thing. A tech paid for 2,080 hours doesn't bill 2,080 hours. Subtract:
- Drive time between jobs, unless you bill it
- Supply house runs and shop time
- Training and meetings
- Callbacks and warranty work
- Weather days and slow days
- Paperwork that isn't billed
Imagine the tech above ends up billing 1,300 hours a year once all of that comes out. Those 1,300 hours have to pay for all 2,080 paid hours, plus your overhead, plus profit.
Step 4: Calculate your billable hourly rate
Required billable hourly rate = (annual overhead + annual loaded labor cost + target profit) ÷ annual billable hours
Here's a worked example for an imaginary two-tech plumbing company where the owner runs the office and sales.
| Item | Amount |
|---|---|
| Overhead, including the owner's salary | $190,000 |
| Loaded labor, 2 techs at $80,000 | $160,000 |
| Target profit | $60,000 |
| Total to recover | $410,000 |
| Billable hours, 2 techs at 1,300 | 2,600 |
| Required billable hourly rate | about $158 |
Now look at what happens if each tech bills 1,100 hours instead of 1,300. The same $410,000 spread over 2,200 hours needs about $186 an hour. That's why the billable-hours number matters so much, and why cutting drive time and callbacks can be worth as much as a price increase.
This rate covers labor, overhead and profit. Materials are charged on top. Some owners count the expected profit on materials toward overhead and lower the hourly rate a little; either approach works if you're consistent. For more detail, see How to calculate your billable hourly rate.
Step 5: Mark up materials, and know markup from margin
Materials need a markup. It pays for sourcing, trips to the supply house, carrying stock on the truck, returns, and the part you replace for free when it fails in month eleven.
Markup and margin are not the same, and mixing them up is one of the easiest ways to underprice a job.
- Markup is what you add to your cost, as a percentage of cost.
- Margin is the share of the selling price that's profit, as a percentage of price.
Mark a $100 part up 40% and you sell it for $140. Your margin is $40 out of $140, or about 29%, not 40%.
To hit a margin you want, use this: price = cost ÷ (1 − margin). Here's the conversion. It's just math, not a recommendation.
| Margin you want | Markup that gets you there | Multiply your cost by |
|---|---|---|
| 20% | 25% | 1.25 |
| 25% | 33% | 1.33 |
| 33% | 50% | 1.5 |
| 40% | 67% | 1.67 |
| 50% | 100% | 2.0 |
Many businesses use a sliding scale: a higher multiplier on cheap parts and a lower one on expensive equipment. How to build a price book shows how to set that up.
Step 6: Pick the right pricing model for each kind of work
Different work suits different pricing. Most businesses use two or three of these.
| Model | How it works | Suits | Watch out for |
|---|---|---|---|
| Flat rate | A fixed price per task, from a price book | Repeat repairs and installs: drains, water heaters, capacitors, outlets, garage door springs | Needs accurate standard times |
| Time and materials | Hourly rate plus materials | Unknown scope, handyman work, commercial service | Customers can't see the total up front, so give an estimate or a not-to-exceed amount |
| Per unit | A price per square, square foot, linear foot, room or visit | Roofing, painting, gutters, cleaning, lawn care | Adjust for pitch, stories, access and condition |
| Project bid | One price for a defined scope | Replacements, remodels, landscape installs | Write the scope and exclusions tightly and use change orders |
| Recurring | A monthly, per-visit or annual price | Cleaning, lawn care, pest control, pool service, maintenance plans | Review prices yearly and state cancellation terms clearly |
Here's how per-unit pricing looks in practice.
Roofing: price = squares × base rate per square, plus tear-off per layer per square, plus a steep-pitch or multi-story adjustment, plus flashing and penetrations, plus disposal and permit. Write each adjustment down so every estimator gets the same answer.
Cleaning: estimate the labor hours for the home, multiply by your hourly rate per cleaner, then round to a flat price by home size. For example, with made-up numbers: if a recurring clean of a three-bedroom, two-bath home takes a two-person team 1.5 hours, that's 3 labor hours. At $50 per labor hour, the price is $150 per visit.
Lawn care: set bands by lot size, such as under a quarter acre, a quarter to a half, and over a half. Time a few real visits in each band and price from the average, not the fastest.
Step 7: Add the fees that protect your time
- Trip or diagnostic fee. Say whether it's credited toward the repair if the customer goes ahead.
- Minimum charge for small jobs.
- After-hours, weekend and holiday rates.
- Permit and inspection fees, shown as their own line.
- Disposal and haul-away.
- Same-day or rush premium, if you offer it.
Tell customers about fees before you arrive, not on the invoice.
Script (booking call): "Our diagnostic visit is $[amount]. The tech will find the problem and give you a written price before doing any work. If you go ahead with the repair, the $[amount] goes toward it."
Some states and cities have rules about written estimates, disclosures and home improvement contracts. Check the rules where you work.
Step 8: Check your prices against the market, without copying it
Once your prices are built from your costs, see how they land.
- Track your close rate on estimates. If you win nearly every job you quote, you may be too cheap. If you lose most of them, look at how you present your price and what's included before you cut it.
- Ask why. Send one short text to customers who didn't go ahead: "Thanks for considering us. Would you mind telling me what made the decision? It helps us improve."
- Compare what's included, not just the number. A competitor's lower price may leave out the permit, the haul-away or the warranty.
- Decide what you're known for. Speed, warranty, cleanliness and communication are all worth paying for. Price for the business you're building, not for the cheapest option in town.
Step 9: Present prices with confidence
- Put prices in writing, grouped by task rather than by part.
- Offer options where they make sense; see Good, better, best pricing.
- Don't apologize for the price. You built it from real costs.
When a customer pushes back, change the scope, not your rate.
Script: "I understand, it's a real expense. That price includes [the warranty, the permit, haul-away and cleanup]. If budget is the main concern, here's a version that still fixes the problem safely for less."
How to raise your prices
Review your prices at least once a year, and any time a big cost jumps, such as insurance, wages or a major supplier.
- New customers get new prices straight away.
- Recurring customers get notice before the change.
- Update everything the same day: your price book, the ranges on your website and your office scripts.
Script (email or text to a recurring customer): "Hi [Name], thank you for having us for your cleaning every two weeks this past year. Starting [date], your price will go from $[old] to $[new] per visit, because of rising wages and supply costs. Your team, schedule and checklist stay the same. If you have any questions, just reply here."
Pricing checklist
Once your prices are set, showing a starting price or range for common jobs on your website helps customers know what to expect before they call. Zome's instant quotes do that, using prices and ranges you set and control.
