Handbook / Pricing your work

How to price your services when you work for yourself

A price does three jobs at once. It has to cover what the work costs you, it has to make sense to the buyer next to their alternatives, and it has to survive the work going differently than planned. Most underpricing comes from doing only the second job: looking at what others charge and picking a number nearby. This guide builds the price from the bottom up first, then checks it against the market.

Start with the floor

Your floor is the lowest price at which a job still pays for itself. It has four ingredients, all of which you supply:

• Direct costs for the job: materials, subcontractors, travel, anything bought because of this client.
• A share of overhead: software, insurance, phone, equipment wear, accounting, the things you pay for whether or not this job happens.
• Your time, counted honestly, multiplied by the pretax hourly compensation you want.
• Fees taken from the price, such as a platform commission or card processing.

The hour count is where people fool themselves. A two-hour task with a forty-minute drive each way, a call to agree scope, an invoice and one round of revisions is closer to four and a half hours. Count all of it.

Floor formula (as used by our quote-floor calculator): Required price = (direct costs + allocated overhead + hours × hourly compensation + fixed fee) ÷ (1 − percentage fee ÷ 100).

A worked floor

All numbers here are invented for illustration. A bookkeeper quotes a one-off clean-up of a year of transactions.

1. Direct costs: none.
2. Allocated overhead: she spends $300 a month on software, insurance and phone and expects about 60 billable hours a month, so she allocates $5 an hour. The job is 12 hours, so $60.
3. Time: 12 hours at a pretax target of $55 an hour is $660.
4. Fees: her card processor takes 3% of the invoice.

Floor = ($0 + $60 + $660) ÷ (1 − 0.03) = $720 ÷ 0.97 = $742.27. Rounded, she will not quote below $745 for this scope.

That number says nothing about what the client will pay. It says what she needs. You can run the same arithmetic with your own figures in the quote-floor calculator, which keeps everything in your browser.

What the hourly figure has to carry

An employee's pay comes with things a self-employed person buys separately: the employer's half of Social Security and Medicare, paid time off, health coverage, retirement contributions and equipment. The IRS describes self-employment tax as Social Security and Medicare tax for people who work for themselves, similar to what is withheld from wage earners; you pay both halves through it.

So when you pick an hourly compensation figure, do not copy your old salary divided by working hours. Ask what you need after setting aside tax, after covering the weeks you are not billing, and after paying for coverage you used to get at work.

Check the market without copying it

Once you know your floor, look outward. SBA suggests researching what potential customers pay for alternatives. Collect a few published prices for comparable services and write down exactly what each includes: number of revisions, turnaround, support, materials.

Three outcomes are common:

• Your floor is well below the market. You have room. Price nearer the market and keep the margin as a buffer against jobs that run long.
• Your floor is close to the market. Workable, but there is little slack. Tighten scope and count hours carefully.
• Your floor is above the market. Find out why. Maybe your hours are high because you are new and will get faster; maybe your overhead is spread over too few hours; maybe the buyer is wrong for the price you need.

Choose a structure that matches the risk

The same floor can be packaged in different ways. The right one depends on who carries the risk of the job running long.

• Hourly. The client carries the risk. Suitable when scope is genuinely unknown, such as investigative or support work. Clients often want an estimate or a cap.
• Fixed project price. You carry the risk. Suitable when you can define the deliverable precisely. Add a buffer to your hour estimate and spell out what triggers extra charges.
• Retainer. The client reserves a set amount of your time or output each month. Suitable for ongoing work; define what happens to unused time.
• Packages. A few fixed options with clear inclusions. Suitable when many clients want similar things; they shorten sales conversations.

Whatever you choose, put the scope and the price in writing before work starts. A written scope is what lets you charge for the extra work that would otherwise quietly erase your margin.

Write the price down the way a client will read it

A price without inclusions invites argument. A useful quote names the deliverable, what is included, what is not, the timeline, payment terms and how changes are charged.

Example quote paragraph: Year-end bookkeeping clean-up for one business checking account and one credit card, January to December: reconciled transactions, categorized to your chart of accounts, and a summary profit and loss. Includes one review call. Excludes payroll and sales tax filings. Fixed fee $745, half on acceptance and half on delivery. Additional accounts quoted separately.

Revisit it on a schedule

Costs change, you get faster, and demand tells you things. Review your floor and your prices at a set interval and after any job that ran badly over its estimate. A price you can explain line by line is one you can defend, raise and adjust without guessing.