How to price service jobs so every one of them makes money

Most new service companies set prices by looking at a competitor's flyer and knocking off ten percent. It feels safe. It is also an easy way to work hard all summer and end the year with less than you would have made as an employee. Pricing starts with your own costs, and only then looks outward. This guide builds a price from the ground up, then runs a full example with made-up but realistic numbers so you can swap in your own.

Cost-plus or market pricing: which should you use?

Both, in order.

Cost-plus pricing starts with what the job costs you (labor, materials, a share of overhead) and adds profit. It tells you the lowest price you can charge without losing money. It ignores what customers will pay.

Market pricing starts with what other companies in your area charge for the same work. It tells you what customers are used to paying. It ignores whether that price works for your costs.

Use cost-plus to find your floor, then check the market. If the market price is well above your floor, charge near the market and keep the margin; you earned it by running lean. If the market price is below your floor, something has to change: your costs, your crew speed, your service area, or whether you offer that service at all. Never price below your floor to get established. A customer who picked you only for the lowest number has no reason to stay when a cheaper flyer shows up, and raising prices on a whole route later is harder than starting right.

What goes into a service price?

Every price has to cover four things:

1. Direct job costs. Materials, chemicals, fuel for the job, dump or disposal fees, equipment rental, permits.
2. Labor. Wages for everyone on the job, including you, plus labor burden.
3. Overhead. Costs that exist whether or not you work today: insurance, vehicle payments, phone, software, website, accounting, storage, equipment repairs.
4. Profit. Money left after everything is paid, which funds new equipment, slow months and growth.

Owners usually remember the first. They undercount the second and third, and treat the fourth as whatever is left over. Build it in on purpose.

What is labor burden?

Labor burden is what an employee costs you beyond their hourly wage. Some of it is set by federal law. IRS Publication 15 for 2026 lists the employer's share of Social Security at 6.2% (on wages up to $184,500 per employee) and Medicare at 1.45% of wages, so 7.65% before anything else. The IRS says federal unemployment tax (FUTA) is 6.0% on the first $7,000 you pay each employee in a year, and 0.6% after the credit if you're entitled to the maximum 5.4% credit for state unemployment tax. In a credit reduction state, that credit is smaller and your FUTA bill is higher.

The rest varies by state and trade: state unemployment tax, workers' compensation premiums, paid leave where required, and any benefits you offer. NCCI, a workers' comp rating organization whose experience rating plan 39 jurisdictions have approved (some states run their own bureaus or state funds), explains in its guide to experience rating that each job classification has a state-approved rate applied per $100 of payroll, that a class with more potential for injuries carries a higher rate, and that once your premium is large enough to qualify for experience rating, your own payroll and claims history moves the premium up or down. Ask your insurance agent for your workers' comp rate and your state for your unemployment rate, then add them up. Your total is specific to your state, trade and claims history, so calculate it rather than borrowing someone else's. Our guide on running payroll for a small business covers the filing side.

If you work alone as a sole proprietor, or as a single-member LLC taxed that way (the default), you have no payroll burden, but you do pay self-employment tax. IRS Topic 554 puts the rate at 15.3% (12.4% Social Security plus 2.9% Medicare), generally figured on 92.35% of your net self-employment earnings, and allows a deduction for half of it in figuring your adjusted gross income. That is a reason to pay yourself a real wage in the price, not the minimum you could live on.

Nothing in this section is tax or legal advice; it is general information. Payroll taxes, workers' comp and leave rules depend on your state and how your business is set up, so confirm your numbers with your accountant or payroll provider.

A worked example: pricing one crew hour

Here is a hypothetical two-person company: the owner and one helper, one truck, residential work. Every number below is an example for illustration, not a benchmark. Replace them with yours. The owner's wage carries no payroll burden in this example because a sole owner pays self-employment tax out of earnings; if you pay yourself through payroll, burden your wage like the helper's.

Now price a job. Say it takes the crew 3 hours on site and uses $30 in materials and fuel.

Notice the billable-hours line. If this crew could only bill 4 hours a day instead of 6, overhead per hour would jump to about $22.73 and the floor price would climb with it. Tight routes, fast loading and fewer unpaid estimate trips raise profit without touching the price.

Margin vs markup: the mistake that eats profit

Markup is profit as a percentage of cost. Margin is profit as a percentage of price. They are not the same number, and confusing them is a classic way to earn less than you planned.

In the example, cost per crew hour is $74.15. A 20% markup gives $88.98, and profit of $14.83 is only about 16.7% of that price. To get a 20% margin, divide cost by 0.80 instead, which gives $92.69. Decide which one you mean, write it down, and use the same formula on every quote.

Hourly, flat rate, per unit or recurring?

Once you know your cost per hour, you can express the price however customers prefer to buy:

• Flat rate per job. Customers like knowing the total. You carry the risk if the job runs long, so estimate carefully and define the scope in writing.
• Per unit. Per square foot, per window, per room, per cubic yard of a truck. It scales cleanly and is easy to explain. Build your hourly cost into the unit rate by timing yourself on real jobs.
• Hourly. Fair for open-ended work, but customers dislike the uncertainty, and it punishes you for getting faster.
• Recurring plans. Weekly, monthly or seasonal visits at a set price. Lower per visit, but predictable revenue and dense routes. Card on file and autopay, set up with the customer's consent, make collection simpler.

Whichever model you use, keep the hourly floor in the background. Every so often, divide what a job paid by the crew hours it took. If the answer is below your floor, the price or the process needs work.

Set a minimum charge and price the extras

Small jobs cost a full trip. Loading, driving, setting up and cleaning up take the same time whether the job is 20 minutes or two hours. A minimum charge, set for example at one or two crew hours plus typical materials, protects you from losing money on the tiny ones. In the example, one crew hour plus $30 of materials is about $123 and two hours is about $215, so a minimum somewhere in that range would cover a short visit. Say it clearly on your website and quote form so nobody is surprised.

Price the common add-ons in advance (extra stories, heavy buildup, difficult access, same-day service, disposal) so your crew can quote them on the spot without calling you. Card processing fees are a real cost; include them in overhead. Passing them to customers as a surcharge is governed by state law and card network rules. Visa's merchant surcharging sheet (dated August 2023) allows surcharges on credit cards only, not debit or prepaid, limits them to your cost of acceptance and no more than 3%, and requires notice to your acquirer, the company that set up your card acceptance, 30 days before you start, plus disclosure to customers. Some states restrict or prohibit surcharges, and network rules change, so check both before adding a surcharge line. Our guide to online payments for contractors goes further.

Turn it into a price sheet your crew can use

A price is only useful if everyone quotes it the same way. Put your common jobs, unit rates, minimums and add-ons on one page. Load the same items into your CRM so quotes go out with consistent line items, approvals happen online, and invoices match what was quoted. Then review the numbers every season: when wages, insurance or fuel go up, your floor moves, and the price sheet should follow.

The CRM is also where you learn whether your prices work. When every job records its hours, materials and lead source, you can see which services and which marketing channels actually pay. Seeing those numbers clearly is a big part of why our own service companies run on a custom CRM we wrote for them. If you are paying for leads, our guide on cost per lead vs cost per job shows how to add acquisition cost to the math, and the lead cost calculator does the arithmetic for you.

For the rest of the setup, see our guide to starting a service business and the trade guides on the start a company hub. If you would like someone to look at how your quotes, phone and website are working together, ask for a free system quote.

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