How to Price Your Services So You Actually Make Money

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 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.

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 fix. Most businesses are doing at least two simultaneously.

Type 1: the race to the bottom. This is competitive underpricing. You look at what others charge, assume you need to be cheaper to win work, and set your price below theirs. It feels like smart commercial positioning. It isn't. 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. The businesses that win in the long run are not the cheapest. They're the most clearly valuable.

Type 2: the hidden cost gap. This is structural underpricing, the most dangerous because it's invisible until the damage is done. The owner knows their material costs and labour time. But the price 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. The bank balance looks okay. And every year, the owner works harder for returns that don't justify the risk.

Type 3: the discount habit. The most behavioural form. The price was right when you set it. But over time, one negotiated job at a time, one "loyal client" discount at a time, the average realised price drifts significantly below the list price. The price list says $180/hour. The average invoice says $145/hour. Most owners have no idea how wide the gap has become.

Lightbulb moment 1: the three underpricing questions. First, do you know your gross margin on an average job, not revenue, not markup, but gross margin? If no, you almost certainly have a Type 2 problem. Second, 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. Third, 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.

The maths of underpricing: what a 10% discount actually costs you

Most 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 is one of the most financially clarifying moments in running a business.

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.

Example job: $1,000 quoted price, 40% gross margin. Revenue $1,000, direct costs (labour plus materials) $600, gross profit $400. You offer a 10% discount, so the job becomes $900. Revenue $900, direct costs still $600, gross profit $300. You discounted 10% of revenue but 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.

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.

Read that carefully. If your average gross margin is 30%, which is typical, a 15% discount wipes out half your gross profit on that job. Half. For a single client who asked nicely.

Before you can set a correct price, you need to know your real cost, and most quotes miss several significant cost categories.

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.

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.

Worked example of the loaded labour rate:

• Step 1, base wages: annual wage, e.g. $65,000.
• Step 2, add on-costs: superannuation (11.5%) $7,475; WorkCover (typically 3 to 8%, say 5%) $3,250; leave loading (17.5% on four weeks) $875; training, uniforms, allowances $2,000. Total on-costs $13,600, so total employment cost $78,600/year.
• Step 3, productive hours: 2,080 hours in a year (52 weeks times 40 hours), less annual leave (160), public holidays (80), sick leave (40), and non-billable time (10%, 180 hours). Productive billable hours: 1,620/year.
• Step 4, raw labour rate: $78,600 divided by 1,620 hours equals $48.52/hour.
• Step 5, overhead allocation: annual overhead $120,000, total billable hours across four staff (4 times 1,620) 6,480, so overhead per hour $18.52.
• Step 6, target profit margin: loaded cost $48.52 plus $18.52 equals $67.04/hour; with a 20% target net margin, $67.04 divided by 0.80 equals $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.

Two further realities. Overhead is the largest category of hidden cost: total annual overhead divided by total annual billable hours equals your overhead recovery rate per hour, and it gets added to your labour rate before you calculate your margin. And the owner's wage: in most Scale360 audits, when we add the owner's effective wage back to net profit and divide by hours worked, the result is between $18 and $35 per hour, significantly below what a competent employee in the same trade would earn. That is the financial reality of chronic underpricing, and it takes a single calculation to make it visible.

Lightbulb moment 2: the real test of whether your price is right. 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. Being busy and being profitable are not the same thing. The three numbers you must know cold: your loaded labour rate (per hour, per role), your gross margin on an average job, and 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.

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 the alternative they're ignoring is usually significantly more profitable.

Model 1: cost-plus pricing

Calculate your costs, add a margin on top. If materials and labour cost $600, you add 40% and quote $840. Strengths: simple to calculate, easy to explain, ensures costs are covered. Weaknesses: it ignores the value delivered (a $600 job that saves the client $5,000 is priced the same as one that saves them $500), overhead is frequently missed, it rewards inefficiency, and it sets a price floor rather than a ceiling. Verdict: use as your floor, never as your ceiling.

Model 2: value-based pricing

Price based on the value delivered to the client, not the cost of delivery. 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. Strengths: highest margin model available, decouples price from time, rewards expertise, and differentiates on outcomes rather than rate. Weaknesses: it requires a genuine understanding of client value, the confidence to present and hold it, and is not appropriate for commoditised work. Verdict: the model every service business should move toward for its highest-value work.

Model 3: good-better-best (tiered) pricing

Offer three levels of service at three price points: a basic level, a recommended level (your standard service, where most clients land), and a premium level. Strengths: it anchors the client's comparison internally rather than against competitors, increases average job value, eliminates discounting (you direct price-sensitive clients to the base tier rather than cutting), and clarifies value. Weaknesses: it requires clear differentiation between tiers, is more complex to quote, and requires discipline not to let the base tier become a race to the bottom. Verdict: the single fastest way to increase average job value without increasing volume.

Model 4: retainer or recurring pricing

Charge a fixed monthly fee for ongoing service delivery, suitable for maintenance contracts, cleaning, landscaping, and facilities management. Strengths: predictable revenue, deepened client relationships, lower sales cost, and it incentivises efficiency. Weaknesses: scope-creep risk, cash-flow timing, and it is not suitable for highly variable project work. Verdict: a mix of retainer and job work dramatically improves business stability.

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.

The typical outcome of a well-executed 10 to 15% price increase: you lose 5 to 15% of your client base, and almost always, the clients you lose are your lowest-margin, highest-maintenance clients. The ones who pay late, change scope, and challenge every invoice. Losing them is a net gain. The clients who stay are your best clients. They value you. They accept the increase because the relationship and the quality are worth more than the price difference.

Starting position: revenue $800,000/year, gross margin 35% ($280,000 gross profit), overhead $200,000, net profit $80,000 (10%). A 15% price increase with a 10% volume loss (pessimistic) gives new revenue of roughly $828,000, gross margin improving to 38% ($314,640 gross profit), overhead unchanged, and net profit of $114,640 (13.9%). Revenue up 3.5%, net profit up 43%, working fewer jobs for significantly more money. With no volume loss (optimistic), revenue is $920,000 and net profit $140,400 (15.3%), up 75% from a single pricing decision. In both scenarios, the price increase is the right call.

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 simply accept the price.
2. Give existing clients 60 days' notice in writing. Make it personal and direct, framing the increase around increased costs and continued investment in quality.
3. Raise prices on your lowest-margin clients first. If some 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.
5. Review annually, minimum. A consistent 3 to 5% annual increase is far less disruptive than a 20% increase after five years of keeping prices flat.

And some clients deserve a different outcome: losing them deliberately. Every business has a cohort that costs more to service than they generate in margin.

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. Price confidence is not about being aggressive or indifferent. It's about the way you present your price signalling that it is the correct price, that you know your numbers and your value, and you're not apologising for either.

The most common mistake is the verbal discount: the owner who quotes a price and immediately, in the same breath, offers to come down. This is not generosity. It's insecurity. And it teaches the client that your price is negotiable before they've even asked.

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 script: first confirm the problem and its consequence ("if left unaddressed, this would likely result in $15,000 in damage, that's what we're preventing"); then describe the solution specifically and who is doing it; then state your guarantee; and only then state the price. Then stop talking. Do not offer alternatives. Do not apologise. The awkward silence is the client processing. Let them process.

Handling "you're too expensive" without discounting:

The pricing audit: how to review your prices systematically

Pricing is not set-and-forget. It's a system that requires regular review, at minimum once a year, ideally every six months. Run this audit across six questions: when did we last increase prices (if more than 12 months ago, calculate the CPI increase as the minimum justified)? Have our costs increased since the last review (labour, materials, overhead)? What is our current gross margin and has it moved (compare the last three months to the same period last year)? Which service lines are most and least profitable (calculate margin by job type)? What percentage of our quotes include a discount (pull the last 20 invoices, compare quoted to invoiced)? And how does our price compare to the market (not so you can undercut, so you understand where you sit)?

Set your cadence: a full annual review across all six questions; a quarterly check on gross margin trend and cost changes; an immediate trigger whenever a cost category rises above 5%; and correct pricing from day one on every new service launch.

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 the value you deliver justifies the price you charge, and 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 owner who has made the shift to correct pricing reports the same outcome: less volume, higher margin, less stress, better clients, a more profitable business. The work you're afraid of losing is the work that's been keeping your business small.

Pricing is one of the three highest-leverage areas addressed 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.