How to Price Your Services So You Actually Make Money
Most trade businesses underprice. Not because they don't know their worth — because they're afraid of losing work. Here's how to price with confidence and what happens when you do.
Here is a question worth sitting with: when did you last put your prices up?
If the honest answer is 'I can't remember' — or if the answer involves phrases like 'the market won't support it' or 'I'd lose clients' — then this article is for you.
Underpricing is the single most common financial problem in Australian trade and service businesses. Not bad debts. Not high overheads. Not slow clients. Underpricing. Businesses that are genuinely busy — sometimes working themselves into the ground — that are barely profitable because the prices they charge don't reflect what it actually costs to deliver the work at the standard they deliver it.
The worst part is that it's almost never a calculation error. Most business owners, if you sat them down and walked them through the real cost of a job, would agree in ten minutes that their prices don't stack up. The problem isn't knowledge. It's psychology. The fear of losing the job is louder than the logic of the spreadsheet.
You're not losing jobs because you're too expensive. You're losing margin because you're too cheap — and the jobs you're winning are the ones destroying your business from the inside. |
This article cuts through both problems. It gives you the maths — the formulas, the benchmarks, the calculations that tell you definitively what your minimum viable price is. And it gives you the framework for actually charging it, presenting it, and holding it when clients push back.
By the end, you'll know your real numbers, your correct price floor, and — more importantly — why the fear of charging it is costing you far more than the occasional lost job ever could.
SECTION 1
The Diagnosis — The Three Ways Trade Businesses Underprice
Not all underpricing looks the same. There are three distinct patterns, each with a different cause and a different fix. Most businesses are doing at least two of them simultaneously.
Type 1 — The Race to the Bottom
This is competitive underpricing. You look at what others are charging in the market, assume you need to be cheaper to win work, and set your price below theirs. It feels like smart commercial positioning. It isn't.
The race to the bottom is a race with no prize at the finish line. If you win jobs because you're the cheapest, you attract clients who chose you for the cheapest reason. They'll leave the moment someone cheaper comes along. You'll have to keep cutting to retain them. And you'll build a client base and a reputation built entirely on the one thing that cannot sustain a business: price.
The businesses that win in the long run are not the cheapest. They're the most clearly valuable. The difference between 'I'm not the cheapest, but here's why we're worth it' and 'I'll sharpen my pencil' is the difference between a business and a job.
Type 2 — The Hidden Cost Gap
This is structural underpricing — and it's the most dangerous because it's invisible until the damage is done. The business owner knows their material costs and their labour time. But the price they charge doesn't include overhead recovery, doesn't include their own wage at market rate, and doesn't include a profit margin on top.
They're not losing money on paper — because they're not paying themselves properly, and they're not counting the costs of running the business against each job. The bank balance looks okay. The business looks busy. And every year, the owner works harder for returns that don't justify the risk, the stress, or the hours invested.
Type 3 — The Discount Habit
This is the most behavioural form of underpricing. The price was right when you set it. But over time — one negotiated job at a time, one 'loyal client' discount at a time, one desperate Friday afternoon quote at a time — the average realised price has drifted significantly below the list price. The price list says $180/hour. The average invoice says $145/hour. The gap is the discount habit, and most owners have no idea how wide it's become.
💡 The Lightbulb Moment #1 — The Three Underpricing Questions Answer these three questions honestly. The answers tell you which type of underpricing you're doing — and how urgent the fix is. Question 1: Do you know your gross margin on an average job — not revenue, not markup, but gross margin? If the answer is no, you almost certainly have a Type 2 problem. Question 2: When did you last increase your prices — and was it before or after your costs increased? If costs have risen and prices haven't followed, you have a structural Type 2 problem that compounds every year. Question 3: What percentage of your quoted jobs include a discount — formal or informal? If the answer is 'most of them' or 'I'm not sure', you have a Type 3 problem. |
SECTION 2
The Maths of Underpricing — What a 10% Discount Actually Costs You
Most business owners think of a discount in terms of the amount discounted. A $100 discount on a $1,000 job. Ten percent. Not the end of the world.
That framing is wrong. And understanding why it's wrong is one of the most financially clarifying moments in running a business.
The Leverage Effect of Margin
The correct way to measure the cost of a discount is not as a percentage of revenue — it's as a percentage of gross profit. Because the discount doesn't come off your revenue. It comes directly off your profit. Your costs stay exactly the same.
The Discount Leverage Calculation — Run This for Your Business Example job: $1,000 quoted price, 40% gross margin — Revenue: $1,000 — Direct costs (labour + materials): $600 — Gross profit: $400 (40% margin) You offer a 10% discount. Job price becomes $900. — Revenue: $900 — Direct costs: still $600 (they don't change) — Gross profit: $300 The result: — You discounted 10% of revenue — You lost 25% of your gross profit — To recover that lost profit on the next job, you need to win 33% more work at full price — If you discount every job by 10% on a 40% margin, you need to do 33% more volume just to stand still 📌 This is the leverage effect. Every dollar of discount is not a dollar of revenue foregone — it is a dollar of profit destroyed. And profit has to cover your overheads, your owner's wage, your tax, and your reinvestment in the business. |
The Discount Impact Table — What You're Actually Giving Away
Your Gross Margin | 10% Discount Costs You | 15% Discount Costs You | 20% Discount Costs You |
20% margin | 50% of your gross profit | 75% of your gross profit | All your gross profit + you're losing money |
30% margin | 33% of your gross profit | 50% of your gross profit | 67% of your gross profit |
40% margin | 25% of your gross profit | 38% of your gross profit | 50% of your gross profit |
50% margin | 20% of your gross profit | 30% of your gross profit | 40% of your gross profit |
Read that table carefully. If your average gross margin is 30% — which is typical for many trade businesses — a 15% discount wipes out half your gross profit on that job. Half. For a single client who asked nicely.
The Hidden Costs Most Quotes Never Include
Before you can set a correct price, you need to know your real cost. And most trade business quotes miss several significant cost categories.
Cost Category | What Most Quotes Include | What They Miss |
Labour | Wages paid to staff | Super, leave loading, WorkCover, training time, travel time |
Materials | Supplier invoice | Wastage allowance (typically 5–15%), storage costs, freight |
Overhead | Nothing — absorbed into margin | Rent, vehicles, insurance, admin, marketing, software, phone |
Owner's time | Nothing — owner works free | Market-rate wage for every hour the owner spends on the job |
Profit margin | Often zero or minimal | Minimum 15–20% net profit to justify business risk |
Contingency | Nothing | Rework, warranty callbacks, client changes — minimum 5–8% |
If your quote doesn't include overhead recovery, a market-rate wage for your own time, and a net profit margin — you are not quoting a job price. You are quoting a cost price. And delivering work at cost is not a business — it's a charity.
SECTION 3
Your Real Cost Structure — Building a Price From the Ground Up
The most important number in your pricing is your loaded labour rate — the true cost per hour of having a person doing productive work, fully loaded with every on-cost. Most trade businesses get this number wrong, and every quote that flows from a wrong labour rate is structurally incorrect.
How to Calculate Your Loaded Labour Rate
The Loaded Labour Rate Formula — Step by Step Step 1: Start with base wages — Annual wage: e.g. $65,000 Step 2: Add on-costs — Superannuation (11.5%): $7,475 — WorkCover insurance (varies by trade, typically 3–8%): e.g. $3,250 at 5% — Leave loading (17.5% on 4 weeks annual leave): $875 — Training, uniforms, allowances: e.g. $2,000 — Total on-costs: $13,600 — Total employment cost: $78,600/year Step 3: Calculate productive hours — Total hours in year: 2,080 (52 weeks × 40hrs) — Less: annual leave (160 hrs), public holidays (80 hrs), sick leave (40 hrs), non-billable time (10%: 180 hrs) — Productive billable hours: 2,080 − 460 = 1,620 hours/year Step 4: Calculate raw labour rate — $78,600 ÷ 1,620 hours = $48.52/hour (raw cost) Step 5: Add overhead allocation — Annual overhead (rent, vehicles, admin, marketing, etc.): e.g. $120,000 — Total billable hours across all staff (e.g. 4 staff × 1,620): 6,480 — Overhead per hour: $120,000 ÷ 6,480 = $18.52/hour Step 6: Add target profit margin — Loaded cost: $48.52 + $18.52 = $67.04/hour — Target net margin 20%: $67.04 ÷ 0.80 = $83.80/hour minimum 📌 Your minimum viable charge-out rate for this role is $84/hour. Anything below this and you are paying to do the job. |
The Overhead Recovery Problem
Overhead is the largest category of hidden cost in most trade business pricing. Vehicles, insurance, tools and equipment, admin staff, software subscriptions, marketing, accounting fees — these costs exist whether or not you're on a job. They need to be recovered through your pricing, allocated across every billable hour.
The formula is simple: total annual overhead ÷ total annual billable hours = overhead recovery rate per hour. That number gets added to your labour rate before you calculate your margin. If it doesn't get included, overhead comes out of your profit — and your apparent profit is an illusion.
The Owner's Wage Problem
Here is the calculation that produces the most uncomfortable moment in every Scale360 business audit: we take the business's net profit and add back the owner's effective wage — what they actually withdrew from the business to live on. We then divide that total by the hours the owner worked.
In most cases, the result is between $18 and $35 per hour — significantly below what a competent employee in the same trade would earn.
The business is not generating a return on the owner's investment and risk. It's generating a below-market wage — with all the stress, hours, and liability of ownership attached. This is the financial reality of chronic underpricing, and it takes a single calculation to make it visible.
💡 The Lightbulb Moment #2 — The Real Test of Whether Your Price Is Right Here is the definitive test of whether your current price is correct: After paying all costs (including your own market-rate wage), does your business generate a net profit of at least 15% of revenue? If yes: your prices may be adequate. Review annually. If no: your prices are structurally insufficient — regardless of how busy you are.
A business can work itself into insolvency by winning too much work at the wrong price. The three numbers you must know cold: — Your loaded labour rate (per hour, per role) — Your gross margin on an average job — Your net profit percentage after owner's market wage If you cannot state all three without looking them up, you do not yet have the information you need to price correctly. |
SECTION 4
The Four Pricing Models — Which One You Should Be Using
There are four pricing models available to trade and service businesses. Most owners use one by default without realising there are alternatives — and that the alternative they're ignoring is usually significantly more profitable.
MODEL 1 Cost-Plus Pricing Calculate your costs, add a margin on top. HOW IT WORKS You add up your direct costs — materials and labour — and apply a markup percentage. If materials and labour cost $600, you add 40% and quote $840. The margin is calculated on cost, not on price. STRENGTHS ✓ Simple to calculate ✓ Easy to explain internally ✓ Ensures costs are covered WEAKNESSES ✗ Ignores value delivered — a $600 job that saves the client $5,000 is priced the same as one that saves them $500 ✗ Overhead frequently missed — markup applied to direct costs doesn't recover indirect costs ✗ Rewards inefficiency — if your costs go up, your price goes up; no incentive to optimise ✗ Sets price floor, not price ceiling — leaves money on the table systematically VERDICT: Use as your floor, never as your ceiling. Cost-plus tells you the minimum. It should never determine the maximum. |
MODEL 2 Value-Based Pricing Price based on the value delivered to the client — not the cost of delivery. HOW IT WORKS You assess what the outcome is worth to the client and price accordingly. An emergency plumber at 2am preventing $20,000 of water damage is not worth the same as a routine service call, even if the labour hours are identical. Value-based pricing captures the worth of the outcome. STRENGTHS ✓ Highest margin model available — captures full value, not just cost recovery ✓ Decouples price from time — a faster, more efficient delivery doesn't mean a lower price ✓ Rewards expertise — the more skilled and experienced you are, the more you can charge ✓ Differentiates on outcomes rather than competing on rate WEAKNESSES ✗ Requires genuine understanding of client value — harder to calculate than cost ✗ Requires confidence to present and hold — clients will push back ✗ Not appropriate for commoditised work where outcomes are identical across providers VERDICT: The model every service business should move toward for its highest-value work. Requires strong market positioning. |
MODEL 3 Good-Better-Best (Tiered) Pricing Offer three levels of service at three price points. HOW IT WORKS You present clients with three options: a basic level (stripped down, lower price), a recommended level (your standard service, most clients choose this), and a premium level (enhanced service, fastest turnaround, additional guarantees). Most clients choose the middle tier, which is your full-margin standard service — and some choose premium. STRENGTHS ✓ Anchors the client's comparison internally rather than against competitors — they're choosing between your tiers, not your price and a competitor's ✓ Increases average job value — premium tier upsells clients who would otherwise buy standard ✓ Eliminates discounting — instead of discounting, you direct price-sensitive clients to the base tier ✓ Clarifies value by making the differences between levels explicit WEAKNESSES ✗ Requires clear differentiation between tiers — if the differences aren't meaningful, clients buy cheap ✗ More complex to quote than a single price ✗ Requires discipline not to let the base tier become a race to the bottom VERDICT: Highly effective for most service businesses. The single fastest way to increase average job value without increasing volume. |
MODEL 4 Retainer / Recurring Pricing Charge a fixed monthly fee for ongoing service delivery. HOW IT WORKS Instead of quoting job by job, you package a defined scope of services into a monthly retainer. The client pays a fixed amount each month. You deliver the scope. Suitable for maintenance contracts, cleaning services, landscaping, facilities management, and any service with predictable recurring demand. STRENGTHS ✓ Predictable revenue — financial stability of knowing next month's income in advance ✓ Deepened client relationships — retainer clients are harder to lose than one-off clients ✓ Lower sales cost — no requoting the same client each time ✓ Incentivises efficiency — if you deliver the scope in fewer hours, margin improves WEAKNESSES ✗ Scope creep risk — requires tight contract management and scope definition ✗ Cash flow timing — retainer income arrives on schedule regardless of workload ✗ Not suitable for highly variable or project-based work VERDICT: Transformative for the right business type. A mix of retainer and job work dramatically improves business stability. |
SECTION 5
Raising Your Prices — The Fear vs. The Reality
The most common objection to raising prices is: 'I'll lose clients.' It's a real fear. It's also, in most cases, significantly overstated — and the cost of acting on that fear is significantly underestimated.
What Actually Happens When You Raise Prices
Based on working with trade business owners through price increases, the typical outcome of a well-executed 10–15% price increase is: you lose 5–15% of your client base. Almost always, the clients you lose are your lowest-margin, highest-maintenance clients. The ones who pay late, change scope, challenge every invoice, and refer similar clients. Losing them is a net gain.
The clients who stay are your best clients. They value you. They're not shopping on price. They accept the increase because the relationship and the quality are worth more to them than the difference in price.
The Price Increase Maths — What a 15% Increase Does to Profitability Starting position: — Revenue: $800,000/year — Gross margin: 35% — Gross profit: $280,000 — Overhead: $200,000 — Net profit: $80,000 (10%) Scenario A: 15% price increase, 10% volume loss (pessimistic) — New revenue: $800,000 × 1.15 × 0.90 = $828,000 — Gross margin improves slightly (lower volume = lower variable cost): 38% — Gross profit: $314,640 — Overhead: unchanged at $200,000 — Net profit: $114,640 (13.9%) — Result: Revenue up 3.5%, net profit up 43%. Working fewer jobs for significantly more money. Scenario B: 15% price increase, 0% volume loss (optimistic) — New revenue: $920,000 — Gross profit at 37%: $340,400 — Net profit: $140,400 (15.3%) — Result: Net profit up 75% from a single pricing decision. 📌 In both scenarios, the price increase is the right decision. The fear of losing volume is real — but the financial reality of the outcome is almost always better than staying at the old price. |
How to Raise Prices — The Sequencing
1. Start with new clients. Never raise prices on existing clients without notice. New clients quoted from a new rate card have no reference point and will simply accept the price.
2. Give existing clients 60 days' notice in writing. Make it personal and direct. 'From [date], our prices will increase by [amount] to reflect increased costs and continued investment in our quality and service. We value your business and want to give you plenty of notice.'
3. Raise prices on your lowest-margin clients first. If some clients leave at the new rate, you want it to be the ones you're least profitable with.
4. Do not negotiate the increase. You may offer to honour current pricing for one more month. You do not discount the new price. The moment you negotiate, you've established that your prices are flexible — and every client will remember that.
5. Review annually, minimum. Your costs go up every year. Your prices should too. A 3–5% annual increase, consistently applied, is far less disruptive than a 20% increase after five years of keeping prices flat.
The Clients You Should Fire
Not every client deserves a price increase. Some clients deserve a different outcome: losing them deliberately.
Every service business has a cohort of clients who cost more to service than they generate in margin. They take longer than quoted. They require more hand-holding. They pay late. They're never quite satisfied. They generate more stress and callbacks per job than any other client segment. And when you raise prices on them, they complain loudest.
Clients Worth Keeping | Clients Worth Losing |
Pay on time, every time | Consistently late — have to be chased |
Accept quotes without extended negotiation | Demand discounts as a condition of work |
Refer other clients like themselves | Never refer, or refer clients like themselves |
Scope is clear — few changes mid-job | Scope creep on every single engagement |
Trust your expertise and let you work | Micromanage every decision on site |
Communicate problems calmly | Escalate every issue to a complaint |
Repeat business that grows over time | Transactional — lowest price wins every time |
SECTION 6
The Confidence Factor — How to Present Your Price and Hold It
Knowing your correct price and being able to present it are two different skills. The pricing work gets you the number. This section gets you the delivery.
The Psychology of Price Presentation
Price confidence is not about being aggressive or indifferent. It's about the way you present your price signalling to the client that it is the correct price — that you know your numbers, you know your value, and you're not apologising for either.
The most common mistake in price presentation is the verbal discount — the owner who quotes a price and immediately, in the same breath, offers to come down or suggests the client might find it cheaper elsewhere. This is not generosity. It's insecurity. And it teaches the client immediately that your price is negotiable before they've even asked.
The price you present is the price you believe is correct. If you don't present it as if you believe that, you're inviting the client to believe you're wrong.
The Value Anchor — What You Say Before the Number
Price is always evaluated relative to something. A $2,000 job sounds expensive in isolation. The same $2,000 job sounds like obvious value after you've described what happens if the problem isn't fixed ($15,000 in damage), what your team's experience level is, what the job includes, and what your guarantee covers.
The value anchor is the information you give before the number. Its job is to shift the client's reference point from 'what is this costing me' to 'what is this getting me'.
The Value Anchor Script — Before You Mention the Price 1. Confirm the problem and its consequence 'Based on what you've described and what I've seen today, [the problem] — if left unaddressed — would likely result in [consequence]. That's what we're preventing.' 2. Describe the solution specifically 'What we'll do is [specific description of work]. That includes [specific inclusions]. The job will take [timeframe] and will be done by [specific team/person with relevant experience].' 3. State your guarantee 'Our work comes with a [X]-year/month workmanship guarantee. If anything isn't right, we come back at no cost.' 4. Then, and only then, state the price 'The total price for all of that is [price].' — Then stop talking. Do not offer alternatives. Do not apologise. Do not fill the silence. — The most common mistake after stating a price is immediately offering a discount to break the awkward silence. — The awkward silence is the client processing. Let them process. |
Handling 'You're Too Expensive' — Without Discounting
'You're too expensive' is not a factual statement. It's a negotiating position. The client is telling you they want a lower price, not that they've done a detailed market analysis and found your price is above fair value. How you respond determines whether you lose the job, win it at full margin, or lose it to a discount.
What They Say | Wrong Response | Right Response |
"You're too expensive." | "I can bring it down a bit — how about $X?" | "Compared to what? If you've had other quotes, I'm happy to understand what was included." |
"I can get it done cheaper." | "Oh right — who by? I'll try to match it." | "Cheaper is usually a different scope or a different standard. What specifically was included in the lower quote?" |
"Can you do anything on the price?" | "Yeah, I can probably take off a bit..." | "The price reflects exactly what the job requires to be done properly. What I can do is adjust the scope if budget is the constraint." |
"I need to think about it." | "Sure, let me know — and I can always come down if that helps." | "Of course. What's your timeline for deciding? I want to make sure we can fit you in if you'd like to proceed." |
SECTION 7
The Pricing Audit — How to Review Your Current Prices Systematically
Pricing is not a set-and-forget decision. It's a system that requires regular review, calibration, and adjustment. Here is the framework for conducting a proper pricing audit — something that should happen at minimum once a year, and ideally every six months.
The Three Numbers You Must Know Cold
✓ Loaded labour rate per billable hour, per role. If you can't state this number immediately, your quotes are guesses.
✓ Gross margin on an average job. Revenue minus direct costs divided by revenue. If it's below 35% for most trade businesses, you have a structural problem.
✓ Net profit percentage after market-rate owner's wage. If it's below 10–15%, your price is supporting the business but not rewarding the investment.
The Pricing Audit Framework — Six Questions
Run This Audit Annually — Minimum Question 1: When did we last increase prices? If more than 12 months ago, calculate the CPI increase since then. That's the minimum increase justified by inflation alone. Question 2: Have our costs increased since the last price review? Labour costs (award increases, super changes), materials (supplier price increases), overhead (rent, insurance, fuel). Document the percentage increase in each category. Question 3: What is our current gross margin — and has it moved? Calculate gross margin for the last 3 months and compare to the same period last year. A declining margin means costs have risen faster than prices. Question 4: Which service lines are our most and least profitable? Calculate gross margin by job type. Some services will be significantly more profitable than others. Are you pricing and promoting the profitable ones? Are you discounting the unprofitable ones out of habit? Question 5: What percentage of our quotes include a discount? Pull the last 20 invoices. Compare quoted price to invoiced price. Calculate average discount rate. If it's above 5%, you have a discount habit problem. Question 6: How does our price compare to the market? Not so you can undercut — so you can understand where you sit. If you're at the bottom of the market and you're not the most efficient operator in it, you're leaving significant margin on the table. |
Setting Your Pricing Review Cadence
— Annual full review: full audit across all six questions. Reset pricing for the coming year.
— Quarterly check: gross margin trend, any cost changes requiring immediate adjustment.
— Immediate trigger: any significant cost increase (materials, labour, overhead above 5%) triggers an immediate pricing review, not a wait until the annual cycle.
— New service launch: price it correctly from day one. It's far harder to raise a price that clients have anchored to than to set it correctly at launch.
💡 The Lightbulb Moment #3 — Pricing Is a Leadership Decision The decision to raise your prices is not a financial decision. It's a leadership decision. It requires you to decide what your business is worth and communicate that clearly — even when the client pushes back. It requires you to believe that the value you deliver justifies the price you charge. It requires you to be willing to lose the work that doesn't value what you do — in order to win and keep the work that does. Every business owner who has made the shift to correct pricing reports the same outcome: Less volume. Higher margin. Less stress. Better clients. More profitable business. The fear of losing work at the higher price is real. What's also real is this: The work you're afraid of losing is the work that's been keeping your business small. |
THE PRICING TOOLS — DOWNLOAD THE CALCULATORS
This article is accompanied by two practical tools: a Service Pricing Calculator and a Trade Job Quotation System. Both are available as free downloads from Scale360.
TAKE THE NEXT STEP
Pricing is one of the three highest-leverage areas we address in every Scale360 coaching engagement — alongside systems and digital presence. If you'd like an experienced analysis of your current pricing structure and a clear recommendation on where to improve margin, book a free discovery call.