Pricing Your Services for Profit

Most service businesses set their prices once, when they're starting out, and then never revisit them. Three years and 30% in cost inflation later, they're working harder than ever and somehow making less money.

Pricing isn't a one-time decision. Here's the annual exercise we walk our clients through to make sure the numbers actually work.

Step 1: Know Your True Hourly Cost

Before you can price a service, you need to know what an hour of your time actually has to earn to keep the lights on.

Add up your annual numbers:

• Personal income target (what you actually want to take home)
• Self-employment tax (~15.3% on top of that)
• Federal and state income tax (estimate 20–25%)
• Health insurance, retirement contributions
• Business overhead (software, rent, marketing, supplies, insurance)

That total is what your business has to gross.

Now divide by billable hours. Be honest: in a 40-hour week, you might bill 25 — the rest is admin, sales, email, and recovery. That's ~1,200 billable hours per year, not 2,000.

Total annual gross need ÷ realistic billable hours = your true minimum hourly rate.

Step 2: Audit Your Existing Clients

Pull the last 12 months. For each client or project, calculate:

• Revenue collected
• Hours actually spent (including all the 'quick questions' and revisions)
• Effective hourly rate (revenue ÷ hours)

Sort by effective rate, lowest to highest. The clients at the bottom are subsidizing the ones at the top. You're losing money on them, you just didn't know it.

Step 3: Decide Your Pricing Strategy

Three viable approaches:

Hourly

Easy to explain, but caps your income at the number of hours in a day and punishes you for getting faster. Best for genuinely unpredictable scopes.

Project / fixed fee

Quote based on the value of the outcome and your estimated time, with a clear scope. Rewards efficiency. Requires a tight scope and a change-order process for additions.

Retainer / package

Recurring monthly fee for a defined set of deliverables. Smoothest cash flow and the best client relationships. The model we use for our own bookkeeping plans.

Step 4: Raise Prices on New Clients First

Set your new pricing today. Every new client gets it. No exceptions.

For existing clients, you have options:

• Annual increase letter (the easiest — most clients expect a small bump each year)
• Grandfather them at the old rate for 6–12 months, then transition
• Use a contract renewal as the natural moment to reprice

Step 5: Get Comfortable Losing the Wrong Clients

If you raise prices and nobody pushes back, your old prices were too low. If a few clients leave, that's the system working. They were the ones at the bottom of the audit list anyway.

Bottom Line

Block 90 minutes on your calendar every November. Run the numbers. Raise prices where the math demands it. Most service businesses we work with discover they should be charging 15–30% more — and almost none of them lose meaningful revenue when they do.

If you'd like a second set of eyes on the math, that's exactly what our quarterly review calls in the Standard and Enhanced bookkeeping plans are for.