Setting a price for a service is not just choosing an hourly rate. A workable price needs to cover the time and costs of delivery, tax and GST obligations, non-billable work and the profit needed to keep the business healthy.
Start with capacity, not a guess
If you work 40 hours a week, not all 40 hours are available for customers. Allow for sales, admin, travel, training, leave, quoting and rework. A service business may have only 20 to 30 genuinely billable hours in a normal week.
Calculate:
- realistic billable hours or jobs
- monthly fixed costs
- direct delivery costs
- owner pay or drawings required
- tax and software costs
- the margin you want to keep
If the business needs $12,000 a month to cover costs and target profit and can realistically deliver 100 billable hours, the base price is already $120 per hour before considering GST or a buffer for bad months.
Know the difference between markup and margin
If a job costs $600 and you add a 25% markup, the price is $750. The margin is $150 divided by $750, or 20%. Confusing markup with margin can leave a new business underpriced.
For fixed-price work, list the deliverables and estimate the hours and direct costs before quoting. Add a review point for scope changes. A cheap first project that takes twice as long is not a marketing win if it uses the capacity needed for profitable work.
Decide how GST appears in the price
If you are GST-registered, be clear whether the advertised price is GST-inclusive or GST-exclusive. GST registration is generally required when taxable turnover reaches or is expected to reach $60,000 in a rolling 12-month period. GST collected is not revenue you can spend; keep it visible for the return.
For consumer-facing prices, showing the total GST-inclusive amount may be clearer. For business customers, show the GST-exclusive price and GST separately where appropriate. Use one approach consistently.
Review price after the first few jobs
Track quoted time, actual time, direct costs, customer outcome and the final margin. If every job requires extra work, the issue may be scope, process or price. Raise prices gradually for new work rather than waiting until the business is under pressure.
A practical pricing test
Before publishing a price, ask:
- Does it cover realistic capacity?
- Does it include admin and rework?
- Does it leave room for tax and GST?
- Does the customer understand what is included?
- What happens when the scope changes?
- Is the margin enough to fund the next stage of the business?
Pricing is a commercial decision supported by numbers. This article is general information, not a quote or personalised business advice.
Make the next step practical
Use the ideas here as a starting point for a better conversation. The right answer depends on your records, timing and circumstances, so keep the assumptions visible and revisit them when something changes.