Pricing a Service When Your Time Is the Product
To take home $40 an hour, you have to charge about $133 an hour.
Not because anybody is being greedy. Because half your week is not billable, expenses come out, tax comes out, and you do not get paid for the weeks you do not work.
Most pricing advice starts from what competitors charge. This starts from what you want to keep, which is the only end of the problem you control.
The Money Mastery System dashboard showing income by service against the hours behind it. Example data.
The short version
To keep $40 an hour you need to charge about $133, at 50% billable.
A price covers five things: the hour, the unbilled hours, costs, tax and time off.
Price = what you want to keep ÷ (billable share × 0.8 × 0.75), with your own figures in place of the last two.
Quote by the job, using the hourly figure behind the scenes.
What you have to charge, to keep what you want
You want to keep | At 40% billable | At 50% billable | At 60% billable |
|---|---|---|---|
$25 an hour | $104 | $83 | $69 |
$30 an hour | $125 | $100 | $83 |
$40 an hour | $167 | $133 | $111 |
$50 an hour | $208 | $167 | $139 |
This is the true hourly rate calculation run backwards. That post asks what your rate leaves you. This one asks what you must charge to be left with a particular number.
The five layers a price has to cover
A price is not one thing. It is five, stacked.
The hour itself. What you want that hour to pay you.
The hours that do not bill. Quoting, ordering, rescheduling, chasing, the books. At 50% billable this alone doubles the number.
The cost of delivering. Product, tools, software, insurance. About 20% of revenue in a typical service business.
Tax. Nobody is withholding it. A quarter is the usual starting point.
The weeks you do not work. Four unpaid weeks a year adds about 8% to everything above.
Miss any one of them and the price looks fine and the year does not.
The method, in one line
Your price = what you want to keep ÷ (billable share × 0.8 × 0.75)
At 50% billable that divisor is 0.3, which is why a $40 take-home needs a $133 price. Put your own expense share and your own set-aside in place of the 0.8 and the 0.75 and the number becomes properly yours.
Why raising a price is the most efficient thing you can do
Every other lever costs hours. A price rise costs none.
Ten percent more on your price is ten percent more take-home from the same week. Ten percent more clients is ten percent more hours, more admin, more product and more risk, for the same result.
That is the whole argument, and it is why most of the women who feel stuck at their income are not underworked, they are underpriced.
Income by service, sorted, with the lowest earner visible. Example data.
Price per job, not per hour
The table is per hour because it is the clearest way to see the layers. Most service businesses should quote per job.
Work out the hours the job really takes, including the parts that never appear on an invoice, then apply the number from the grid. Quote the total. The client gets a price, and you keep the arithmetic.
One job, priced with the grid
A three hour session, for someone who wants to keep $40 an hour and bills half her week.
Line | Quoted at $400 | Quoted at $250 |
|---|---|---|
Hours with the client | 3 | 3 |
Unbilled hours behind them, at 50% billable | 3 | 3 |
After 20% costs | $320 | $200 |
After a 25% set-aside | $240 | $150 |
Kept per hour worked | $40 | $25 |
Three billable hours at $133 is $399, so she quotes $400. Six hours of her week went into it, and $240 is left, which is the $40 an hour she set out to keep.
The right-hand column is the same job at a price that sounds reasonable. It pays $25 an hour, and nothing about the invoice would tell her. This is why the sum is worth doing once for each thing you sell.
Find what each job really pays you, free
The grid needs three of your own figures: your billable share, your expense percentage and your set-aside. La Soglia, the free membership of the Money Mastery System, holds what you own and what you owe in one place, personal and business together, with no bank connection and no card. Rise, at $49.99 a month, is what sorts a year of transactions into the expense percentage without you doing it by hand.
Bring it to the Collective
Prices are the thing women most want a sanity check on before they say the number out loud. The Money Mastery Collective has a discussion feed open on the free membership.
Questions we hear
My competitors charge half this.
Some of them are undercharging, and some have a different cost base. The grid tells you what your price has to be to keep what you want. What you do with that is a business decision, but make it knowing the number.
Can I raise prices on existing clients?
Yes, with notice and without apology. Most people lose fewer clients than they expect and earn more from the ones who stay.
What if my billable share is really low?
Then either your price has to rise or your admin has to fall. Those are the only two doors, and the grid shows you what each is worth.
Does this work for packages?
Yes. Work out the total hours in the package, including delivery and revisions, and apply the same divisor.
How do I work out my hourly rate as a freelancer?
Divide what you want to keep per hour by your billable share, then by what is left after costs and tax. At 50% billable, 20% costs and a 25% set-aside, keeping $40 needs about $133.
What is a billable share?
The part of your working week you can charge a client for. For many one person service businesses it is about half.
Start free with La Soglia
La Soglia is the free membership of the Money Mastery System. It gives you the Net Worth Tracker, where everything you own and everything you owe sits in one place, and the Money Mastery Collective. There is no card to enter and no bank connection.
Keep in touch
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A note on what this is
This article is educational. The Money Mastery System is an educational tool, not financial software, and nothing here is legal, tax, investment or financial advice. The figures are worked examples from the assumptions stated, not a recommendation about what to charge. For guidance on your own circumstances, please speak with a qualified professional who knows them.
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