How to price your services for maximum profit

To price your services for profit, start by working out the minimum rate you need to cover your pay, overheads and a margin, then set your actual prices based on the value you deliver to the client, not just the hours you spend. Most small service businesses charge too little, and a modest price rise usually does more for profit than extra sales.

Key points

• Work out your minimum viable rate first. It's your floor, not your price.
• Cost-plus pricing is simple but leaves money on the table. Value pricing is harder but usually more profitable.
• Fixed fees reward efficiency. Hourly rates reward slowness.
• A 10% discount can wipe out a quarter or more of your gross profit.
• Review prices at least once a year, and put them up when your costs go up.

Step 1: Work out your minimum viable rate

Your minimum viable rate is the lowest price at which the business still pays you properly and makes a profit. It's based on three things:

1. The pay you need. What you'd want to earn before tax if you were doing this job for someone else.
2. Your overheads. Software, insurance, premises, vehicle, phone, marketing, accountancy and so on.
3. A profit margin. A buffer for quiet months, reinvestment and risk.

Then divide by the hours you can realistically bill.

Minimum hourly rate = (target pay + overheads + profit) ÷ billable hours per year

A worked example

Alex runs a one-person design business.

• Target pay: £40,000
• Overheads: £15,000
• Profit and contingency: £5,000
• Total needed: £60,000

Billable hours are where most people go wrong. There are 52 weeks in a year, but after holidays, bank holidays and the odd sick day, Alex works about 46. And not every working hour can be billed, because admin, sales, quotes and chasing invoices all take time. If Alex bills 25 hours in a typical week, that's 46 × 25 = 1,150 billable hours a year.

£60,000 ÷ 1,150 = £52.17 an hour, so a minimum of about £55.

If Alex had been charging £40 an hour on the assumption of 40 billable hours a week, the business would have been falling short every year without anyone noticing.

If you're VAT registered, your prices to customers who can't reclaim VAT need to include it, so account for that when you set consumer prices.

Step 2: Choose a pricing method

Cost-plus pricing

You add a set percentage to your costs. It's simple and easy to justify, and it guarantees a margin on every job, as long as you've estimated costs correctly.

One trap is the difference between markup and margin. If a job costs £600 and you add a 40% markup, the price is £840. Your profit is £240, but that's only a 28.6% margin (£240 ÷ £840). If you need a 40% margin, the price has to be £1,000.

Price for a target margin = cost ÷ (1 − target margin)

The bigger weakness of cost-plus is that it ignores what the work is worth to the customer. Two jobs that take the same time can be worth very different amounts to the client.

Value pricing

You price according to the outcome for the client. A website that brings in £50,000 of new business a year is worth more than one that sits unvisited, even if both took the same time to build.

Value pricing needs a proper conversation up front about what the client wants to achieve and what it's worth to them. It suits work where the results are clear and measurable. Your minimum viable rate still matters: it tells you which jobs you can't afford to take, whatever the client is willing to pay.

Competitor-based pricing

Competitors' prices are useful context, but shouldn't set yours. You don't know their costs, their margins, or whether they're making money at all.

Step 3: Decide between hourly and fixed fees

Hourly billing feels safe, but it caps your income at the hours you can work, and it effectively penalises you for getting better at your job. Fixed fees let you keep the benefit of your experience and systems, and clients generally prefer knowing the cost in advance.

The key to fixed fees is a clear scope. Write down what's included and what isn't, and agree how extra work will be charged before you start.

Many businesses offer packages: two or three fixed-price options at different levels. Clients compare your options with each other rather than with a competitor, and a meaningful share will usually choose the middle or top option.

Step 4: Understand what discounts really cost

Discounts look small on the price but big on the profit. Take a service priced at £100 with direct costs of £60, so gross profit is £40.

A 10% discount cuts gross profit per sale by a quarter, so you'd need a third more sales to stand still. Going the other way, a 5% price rise means you could lose around one in nine customers and still make the same gross profit, with less work.

If you do discount, get something in return: a longer commitment, payment up front, or a bigger scope.

Step 5: Review and raise your prices

Set a date each year to review your prices. Check your minimum viable rate against your current costs, look at your gross margin by type of work, and see which clients or services earn the least. Tracking gross margin monthly, as described in 5 KPI dashboards every business should track, shows you quickly when prices have fallen behind costs.

When you put prices up, give existing clients reasonable notice, explain briefly why, and apply the new rates to new clients straight away.

Frequently asked questions

How much should I put my prices up by?

At the very least, enough to cover the rise in your own costs, including pay. Beyond that it depends on demand. If you're turning work away or winning almost every quote, that's a sign your prices are too low. Small annual increases are usually easier for clients to accept than a large jump after several years of standing still.

Should I publish my prices on my website?

It depends on your work. Publishing prices for standard, well-defined services saves time and filters out enquiries that were never going to fit your budget. For bespoke or larger projects, a "from" price or a typical range can do the same job while leaving room to price each project properly. Either way, be consistent in what you quote.

Is it better to charge by the day than by the hour?

A day rate is often a good middle ground. It's simpler to track than hourly billing, discourages clients from watching the clock, and suits work done in blocks. Work it out the same way as your minimum hourly rate, using billable days instead of hours. It still carries the same weakness as hourly billing: your income is capped by your time.

How Foundry can help

We can help you work out your true costs, your minimum viable rate and the margin on each type of work, then track it through the year. Our CFO services are designed for exactly this kind of decision, and good bookkeeping gives you the figures to rely on. To review your pricing with us, book a free consultation.

This article is general guidance based on the rules for the 2026/27 tax year and isn't personal advice. Speak to us before acting on it.