How to price your services when you're starting out
Start with what you need to take home, then work backward. Add what you want to pay yourself to what the business costs to run. Divide by the weeks you'll actually work, then by the hours you can actually bill. That's your floor. Competitor prices come in after that, to show you how the market will react to your number.
About 10 minutes, live with me. No commitment either way.
Sound familiar?
Most new owners price by feel. The feel is usually low. Here's how to build the number instead.
Four steps to a price you can live on
Decide what you want to take home
A real annual number. The one that would make leaving your job worth it, or make the side business worth your evenings.
Add what the business costs to run
Insurance, software, your vehicle, tools, phone, marketing, a bookkeeper, and money set aside for taxes. Guess high. It's always more than you think.
Divide by the weeks you'll really work
Take out vacation, holidays, sick days and slow weeks. For a lot of people that's closer to 46 weeks than 52. That gives you a weekly revenue target.
Divide by the hours you can actually bill
Quoting, driving, invoicing and marketing all take time no one pays you for. Plan on billing well under 40 hours a week. The result is your target hourly rate.
Here's what that looks like with real numbers.
Say you want the business to pay you $80,000 a year before personal taxes, and it costs about $25,000 a year to run. That's $105,000 the business has to produce before you've built in anything extra for profit, reserves or reinvestment.
Give yourself 46 working weeks a year and that's about $2,283 a week.
Now comes the part people miss.
You may work 40 hours a week, but you can't bill all 40. You've still got estimates, follow-up, bookkeeping, marketing, scheduling and the hundred other things that magically appear when you own the place.
If 25 billable hours a week is realistic, your absolute floor is about $91 an hour.
Now picture pricing the other way. You look around, see competitors charging $55 and decide $50 sounds competitive.
At 25 billable hours a week, that business generates just $57,500 a year. After $25,000 in business expenses, you're left with $32,500 before personal taxes.
To get back to that original $105,000 at $50 an hour, you'd need nearly 46 billable hours every week.
That's how an owner can have a packed calendar and still wonder where the money went.
$80K in owner income, plus $25K to run the business.
What the business needs each week, over 46 working weeks.
Your absolute hourly floor at 25 billable hours a week.
Hope is not a business model. Math is a much better place to start.
The pricing mistakes that cost new owners the most
Starting low to win the first clients. Those clients become your reference point, and theirs. Raising prices on people who hired you for being cheap is one of the hardest conversations in business. Starting at the right number is much easier.
Counting every hour as billable. If your math assumes 40 billable hours, it assumes you never quote, drive, answer email or take a sick day.
Pricing everything the same. Some services take twice the time or carry twice the risk. Rank your services by what they actually pay per hour, and lead with the ones at the top.
Offering five things at once. One clear offer at a price built from your numbers beats a menu of options priced by guesswork.
If your floor comes out higher than the market, that's useful to know before you spend anything. It usually means you need a sharper position, a different service mix, or a clearer offer, and those are all things you can build.
Build the math before you spend a dollar.
Launch Acceleration is twelve steps over ninety days. Step one turns your income goal into a weekly target and an hourly rate. Step five builds your price from it. See all twelve steps.
Questions
How do I figure out my hourly rate for a new service business?
Add what you want to take home to what the business costs to run. Divide that by the weeks you'll really work, then by the hours you can actually bill each week. That number is your floor. Price at or above it.
Should I charge less than my competitors when I'm starting out?
Usually not. Clients who hire you for the lowest price are the hardest to raise later, and a low price can make people wonder what's wrong. Price from your own numbers, then give people a clear reason to pick you.
How many billable hours should I plan for?
Fewer than you think. Quoting, driving, admin and marketing all take time that no one pays for. Many solo owners bill somewhere in the 20 to 30 hour range in a full work week. Build your price on a number you can hit in a normal week.
Should I charge by the hour, by the job, or with packages?
Work out your hourly floor first, whichever way you plan to charge. Then turn it into job or package prices, so every quote still clears the floor. Clients usually prefer a set price, and it rewards you for getting faster.
What if my price comes out higher than what others charge?
Better to find that out now than in month eight. It usually points to a positioning or service mix question, and those can be worked out before you launch.
Run the numbers together before you spend anything.
About 10 minutes. No commitment either way.
Already have steady revenue coming in? Growing one is probably your door.