Getting Your Pricing Right
Pricing is one of the most important decisions you’ll make in your business, yet many business owners set prices based on guesswork or simply copying competitors. Understanding the fundamentals will help you charge what you’re worth and build a sustainable business.
Two Main Approaches
Cost-Plus Pricing
This is the simplest method: calculate your costs, then add a markup.
How it works:
- Add up all your costs to deliver the service (time, materials, overhead)
- Add a profit margin (typically 20-50%, depending on your industry)
- That’s your price
Example: A web designer spends 10 hours on a project. Their costs (including overhead) work out to $75/hour. With a 40% markup: $750 x 1.4 = $1,050.
Pros: Simple, ensures you cover costs, easy to justify to clients.
Cons: Ignores the value you deliver, can lead to undercharging, penalises efficiency (the faster you get, the less you earn).
Value-Based Pricing
This method prices based on the value your work delivers to the client, not what it costs you.
How it works:
- Understand the outcome your client wants
- Estimate the value that outcome creates for them
- Price as a fraction of that value
Example: A consultant helps a business implement a process that saves them $50,000 per year. Charging $10,000 for that project is a bargain for the client and a healthy fee for the consultant — even if the work only took 20 hours.
Pros: Higher earning potential, rewards expertise and efficiency, aligns your interests with the client’s goals.
Cons: Harder to calculate, requires understanding the client’s business, can be a harder sell for clients used to hourly rates.
Calculating Your Break-Even Point
Before you set any price, you need to know your break-even point — the minimum you must earn to cover all your costs.
The formula:
Fixed Monthly Costs / Number of Billable Projects (or Hours) = Break-Even Price
Example:
- Monthly costs (rent, software, insurance, etc.): $4,000
- Average billable hours per month: 100
- Break-even hourly rate: $40/hour
Anything above $40/hour contributes to profit. Anything below means you’re losing money.
Don’t forget to include:
- Your own salary (you need to eat too)
- Taxes (set aside 25-30% depending on your jurisdiction)
- Non-billable time (admin, marketing, learning — you won’t bill 100% of your time)
A realistic estimate is that only 60-70% of your working hours will be billable. Factor that in.
When to Raise Your Prices
Many business owners wait far too long to increase their rates. Here are signs it’s time:
- You’re fully booked — demand exceeds supply, and you have no room for new clients
- Your costs have increased — rent, tools, and living costs go up; your prices should too
- You’ve gained experience — you’re better and faster than when you started; your prices should reflect that
- You haven’t raised prices in over a year — inflation alone warrants regular adjustments
- You’re resentful — if you feel underpaid, you probably are
How to Raise Prices
- Give notice. Tell existing clients 30-60 days in advance.
- Explain the value. Frame it around what they receive, not what it costs you.
- Start with new clients. It’s easier to set new rates with new people.
- Be confident. Don’t apologise. Fair pricing is professional, not greedy.
Your bookkeeping data in Fastbooks can help you make pricing decisions with confidence — you’ll see exactly what projects cost you, which services are most profitable, and whether your margins support your goals.