Pricing Methodology

How every SmallBizMath pricing calculator works, what it assumes, and what it deliberately leaves out.

Core definitions

• Billable hours — the portion of your working time you can actually invoice to clients: Weeks × Hours/week × Utilization%.
• Break-even rate — the hourly rate that covers your compensation and overhead with zero profit or reserve.
• Reserve % — a simplified stand-in for taxes and a contingency cushion, modeled as a percent of revenue.
• Target profit margin — additional operating profit on top of your own compensation and costs, also modeled as a percent of revenue.
• Recommended rate — the rate that funds compensation, overhead, reserve and target margin simultaneously.

The core formula family

Billable hours (B) = Periods/year × Hours/period × Utilization% Break-even rate = (Compensation + Overhead) / B Sustainable revenue = (Compensation + Overhead) / (1 − Reserve%) Recommended revenue = (Compensation + Overhead) / (1 − Reserve% − Margin%) Recommended rate = Recommended revenue / B

"Periods" are weeks for the Service Pricing, Freelance and Salary-to-Freelance calculators, and consulting days for the Consulting Rate calculator — the math is identical either way.

Rounding

All internal math is done in full floating-point precision. Rounding only happens at display time: currency is shown to whole dollars above $1,000 and to cents below it; percentages are shown to one decimal place; client-facing project quotes are rounded to a "practical" figure (nearest quarter, dollar, $5 or $10 depending on size) to avoid false precision.

What is and isn't included

Included: owner compensation, overhead, additional fixed costs, a simplified tax/contingency reserve, and a target operating profit margin.

Not included: progressive income tax brackets, entity-specific deductions (S-corp vs. sole proprietor vs. LLC), state/local tax variation, health insurance subsidies, or market-demand pricing signals.

Why this is a planning estimate, not tax or accounting advice

SmallBizMath calculates a sustainable internal rate based on the numbers you enter. Actual tax liability depends on your entity type, jurisdiction, deductions and filing status — consult a qualified tax professional or accountant for exact figures. Actual market pricing also depends on demand, positioning, experience and competition, which these calculators do not model.

Improving accuracy

The single biggest lever most users get wrong is billable utilization — see the utilization guide. Track your actual billable vs. total working hours for 4-6 weeks and use that real number instead of a guess.