How to price your work without guessing
Most small-business owners price by feel — a bit below the competitor, a bit above the fear. The result is either leaving money on the table or quietly losing money on every job. This is the four-step formula: costs, market, value, and the decision step where you commit to the number.
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Step 1 — Your floor: true costs
Your floor is the price below which every sale makes your life worse. It has three parts: direct costs (materials, subcontractors, software per job), labor (what your hour actually costs, not what you wish it cost — see the table), and overhead allocation (rent, insurance, and your admin hours smeared across your real weekly capacity).
| Cost part | Example calculation | Result |
|---|---|---|
| Direct materials | $340 per job (avg) | $340 |
| Your labor | $1,200/wk target salary ÷ 25 billable hrs = $48/hr × 6 hrs | $288 |
| Overhead share | $5,200/mo overhead ÷ 100 billable hrs = $52/hr × 2 hrs | $104 |
| True floor | — | $732 |
If your price is 'what feels right' and you never computed the floor, there's a real chance some of your jobs are priced below the floor — you're paying for the privilege of doing them.
Step 2 — The market: a sanity check, not a destination
Look at what comparable providers charge in your region. Not to copy — to know the corridor. If the market is $900–$1,400 for your service and your floor is $732, pricing at $650 isn't 'competitive,' it's a subsidy. If your floor is above the entire market, the honest answers are: cut costs, change the offer, or change markets.
Step 3 — Value: what the result is worth to the buyer
The same work can be worth different amounts to different buyers. A logo for a new bakery and a rebrand for a $20M distributor involve similar hours — wildly different stakes. Ask: what does this problem cost them while unsolved? What does solving it save or earn? Value-based pricing doesn't mean 'charge the maximum' — it means your price should have a reason that survives the question 'why that number?'
- Quantify the stakes where you can: 'This system saves your receptionist ~6 hours a week' is a reason.
- Price the outcome tier, not the hour count — bigger outcomes, bigger tiers.
- Document the reason. You'll need it when a client pushes back and when you raise prices next year.
Step 4 — Decide, then defend
Take floor, corridor, and value — pick the number that respects all three, and write one sentence justifying it. 'I charge $1,100 because my floor is $732, local comparable work runs $900–$1,400, and the typical client recovers the fee in the first quarter.' That sentence does two things: it stops you from discounting on reflex, and it makes every future price review a five-minute check instead of a gut-wrenching restart.
Floor (never go below) · market corridor (sanity) · value (the reason) · then commit. Revisit once a year or when your costs move 10%.
Frequently asked questions
How often should I raise prices?
For most small services: check annually, and adjust when costs or scope drift. Long-term clients hate surprise jumps — an annual note ('My rate moves to X in January, here's why') is respected far more than silence followed by a shock.
What about undercutting to win the first clients?
Strategic discounts exist, but do them as a written, time-limited 'founding client' rate — never as a silent floor-break. The client should know the real number exists; otherwise you're trapped at the discount forever.
Fixed price or hourly?
Price the outcome where you can (fixed, tiered), hourly where scope is genuinely unpredictable. Hybrid works too: fixed price with a clearly-priced hourly rate for additions.