How to Price a Service Job So You Actually Make Money

To price a service job so it makes money, start from what an hour of your crew's time really costs, not from what competitors charge. Add payroll taxes and benefits to the wage, divide by the share of paid hours you actually bill, and add your overhead spread across those billable hours. That is your break-even rate. Divide it by one minus the margin you want, and quote every job from that number.

Most service businesses that feel busy and broke at the same time are underpriced in a way they cannot see. The work is getting done and invoices are going out, but the rate was set years ago, or copied from a competitor with different costs, and it no longer covers what an hour actually costs to deliver.

Why Competitor Pricing Is the Wrong Starting Point

Checking what others charge is useful for knowing what the market will accept. It is a bad way to set your price, for three reasons:

• You do not know their costs. A competitor may pay less, carry less insurance, run older vehicles, or have an owner who does not take a salary.
• You do not know if they are profitable. Plenty of small businesses price below cost for years and make up the difference with the owner's unpaid time.
• It hides your own numbers. Once you anchor on a market rate, you stop asking what an hour costs you.

Work out your own floor first. Then look at the market to decide where above that floor you can sit.

The Five Numbers You Need

1. Loaded labor cost. The hourly wage plus employer payroll taxes, workers' comp, and benefits. Employer FICA alone is 7.65%. With unemployment insurance and workers' comp, 18% to 30% on top of wages is common. Your payroll reports show your real figure.
2. Billable utilization. The share of paid hours that end up on an invoice. Drive time, setup, training, callbacks, and slow days are paid but not billed. Many field crews land between 65% and 80%. Owners usually guess higher than the truth.
3. Annual overhead. Everything that is not direct labor or job materials: rent, vehicles, fuel, insurance, software, marketing, office staff, and a fair salary for you.
4. Billable hours per year. Workers times paid hours times utilization. Four full-time workers at 75% utilization bill about 6,240 hours a year, not 8,320.
5. Target net margin. Profit left after every cost, including your salary. Between 10% and 20% gives you room for slow months, mistakes, and growth.

A Worked Example

Take a hypothetical residential cleaning company with four cleaners at $20 an hour, a 22% payroll burden, 75% utilization, $90,000 a year in overhead including the owner's salary, and a 15% target margin.

Step	Math	Result
Loaded hourly cost	$20 x 1.22	$24.40
Labor cost per billable hour	$24.40 / 0.75	$32.53
Billable hours per year	4 x 2,080 x 0.75	6,240
Overhead per billable hour	$90,000 / 6,240	$14.42
Break-even rate	$32.53 + $14.42	$46.96
Price per billable hour	$46.96 / 0.85	$55.24

A $20-an-hour cleaner costs this business almost $47 for every hour it bills. If the owner charged $45 because that is the going rate in town, every billed hour would lose money, and the business would still look busy.

Margin Is Not Markup

The last step is where many pricing sheets go wrong. To earn a 15% margin, you divide by 0.85. You do not multiply by 1.15.

Margin is measured against the price. Markup is measured against the cost. Adding 15% to a $46.96 break-even rate gives $54.00, which is a 13% margin, not 15%. The gap looks small on one hour. Across 6,240 hours a year it is about $7,700 of profit the owner thought they were earning.

Quoting a Job From the Rate

Once you have the rate, quoting is arithmetic:

1. Estimate crew hours. Crew size times hours on site.
2. Add the time this job causes. Extra drive time to a far-off address, loading special equipment, a second trip for supplies. General unbilled time is already covered by utilization, so only count what this job adds.
3. Multiply by your rate.
4. Add materials with markup. Supplies, rentals, dump fees, and subcontractors at cost plus a markup that covers the time spent buying and handling them.
5. Check the profit. Price the same job at your break-even rate plus materials at cost. The difference is what the job earns.

For the example company, a two-person, three-hour clean with half an hour of added drive time and $18 of supplies is 7 labor hours. At $55.24 an hour plus supplies marked up 20%, the quote is $408.30. The job costs $346.69 at break-even, which leaves about $61.60, a 15% margin.

Common Pricing Mistakes

• Leaving the owner's salary out of overhead. If your price covers only wages and expenses, you are working for whatever is left over, which in a slow month is nothing.
• Assuming 100% utilization. Pricing as if every paid hour is billable is the fastest way to be underpriced.
• Not charging for drive time the job causes. A job 40 minutes away is not the same job as one around the corner.
• Pricing once and never again. Wages, insurance, and fuel go up every year. A rate that was right three years ago may be under break-even today.
• Discounting to win work you cannot afford. A discount comes straight out of margin. On a 15% margin, a 10% discount removes two-thirds of the profit.

How to Check the Rate You Charge Today

Divide your break-even rate by what you charge now and subtract the result from one. That is your real net margin. If you charge $50 and break even at $46.96, your margin is about 6%, which is not much cushion for a bad month. If the number comes out negative, raising prices is not a growth decision. It is a survival one.

If you do need to raise prices, give existing customers 30 days' notice, explain it plainly, and raise new-customer quotes first. Most customers accept a clear, reasonable increase from a business that does good work. The ones who leave over a few dollars were often the least profitable anyway.

A Free Sheet That Does the Math

We built a free job costing and pricing sheet that runs this exact method. Enter your seven inputs and it calculates your loaded cost, break-even rate, and target price, checks the rate you charge today, and has a tab for quoting individual jobs. There is also a printable worksheet version if you would rather work through it on paper.

The inputs come from your books: payroll reports for the burden, last year's Profit and Loss for overhead. If those numbers are hard to pull or you do not trust them, fix that first. Our guide to bookkeepers, accountants, and fractional CFOs explains who does what.

Frequently Asked Questions

What is a good profit margin for a service business?

A net margin of 10% to 20% after paying the owner a fair salary is a healthy target for most small service businesses. Below 5% leaves no room for a slow month or an expensive mistake.

How do I find my payroll burden?

Add up employer payroll taxes, workers' comp premiums, and benefits you paid last year, and divide by total wages. Your payroll provider's annual summary has most of it.

Should I charge hourly or flat rate?

Either works if the price comes from your real hourly cost. Flat rates are easier for customers and reward an efficient crew. Hourly rates protect you when the scope is uncertain. Many businesses quote flat rates built from an hourly estimate.

How often should I recalculate my prices?

Once a year at minimum, and any time a major cost changes: a raise for the crew, a new vehicle, an insurance renewal, or a new office.

If you want someone to run these numbers from your actual books and look at margins by service and customer, that is part of our fractional CFO work. For cleaning and field service companies, we also wrote about which software is worth paying for once the pricing is right.