How to Price a Service Business

A step-by-step walkthrough for setting a sustainable price, starting from what your business needs rather than what competitors charge.

Step 1 — Set your income goal

Decide what you need to pay yourself before tax. This is not your total revenue target — it is your take-home compensation goal.

Step 2 — Total your overhead

Add up annual business costs that exist regardless of how many hours you bill: software, insurance, rent, non-billable staff, marketing.

Step 3 — Estimate realistic billable hours

Multiply working weeks × hours/week × utilization%. Most solo providers land at 50-70% utilization — see the utilization guide.

Step 4 — Add a reserve and target margin

Build in a reserve for taxes and contingencies, plus a target operating profit margin, both as a percent of revenue — not layered on top as separate markups.

Step 5 — Divide revenue by billable hours

Recommended revenue ÷ billable hours = your recommended hourly rate. Use the calculator below to run the full formula automatically.

Step 6 — Sanity-check against the market

Your calculated rate is a sustainable floor, not a market ceiling. Compare it against what similar providers in your niche and region charge, and adjust your costs, hours or income goal if there's a large gap either direction.