Pricing is one of the hardest things to get right in a service business. Charge too little and you burn out. Charge too much and you lose bids. Here's how to find the sweet spot.
The Cost-Plus Formula
The simplest way to price any service is:
Price = (Labor + Materials + Overhead) x Markup
Let's break that down.
1. Calculate Your Labor Cost
This isn't just what you pay your techs. Include:
- Hourly wage or salary
- Payroll taxes (roughly 10-15% on top)
- Workers' comp insurance
- Benefits, if any
If you pay a cleaner $20/hour, the real cost is closer to $24-26/hour once you add taxes and insurance.
2. Add Materials and Supplies
Track what you actually use on each job. Cleaning supplies, parts, mulch, filters — it all adds up. If you're not tracking this, you're probably losing money without realizing it.
3. Factor in Overhead
Overhead is everything that keeps the business running but isn't tied to a specific job:
- Vehicle costs (fuel, insurance, maintenance)
- Software subscriptions
- Marketing and advertising
- Office rent or home office costs
- Phone and internet
Add up your monthly overhead, divide by the number of jobs you do per month, and that's your per-job overhead cost.
4. Apply Your Markup
A healthy markup for most service businesses is 30-50% on top of your costs. This is your profit margin — what actually goes into your pocket after everything is paid.
Know Your Market
Your formula gives you a floor — the minimum you should charge. But the market sets the ceiling. Research what competitors charge in your area. If your price is significantly higher, make sure you can articulate why (better reviews, faster response, included extras).
Review Quarterly
Costs change. Gas prices go up. You give raises. Insurance premiums increase. Set a calendar reminder to review your pricing every three months. Small adjustments are easier for customers to absorb than one big annual hike.
Pricing doesn't have to be a guessing game. Start with your real costs, add a fair margin, and adjust based on what the market tells you. Your business — and your bank account — will thank you.
