Two agencies quote for the same website. One charges 8,000, the other 25,000. Both win work, and the cheaper one is often the one going out of business. If you've ever wondered how to price a service business, start here: price is not a reflection of your hours. It is a decision about which clients you want, what you are selling and how much risk you are carrying. Most service firms underprice not because they're generous but because they never did the maths.
Step one: know your real cost of delivery
Before any pricing model, you need your fully loaded cost per billable hour. Not your salary divided by 2,080 hours – the real one.
Here's a hypothetical small studio:
| Item | Annual amount |
|---|---|
| Salaries and payroll costs (4 people) | 320,000 |
| Rent, software, equipment, insurance | 60,000 |
| Marketing, sales, accounting, legal | 40,000 |
| Total cost | 420,000 |
Four people working full time is roughly 7,000 hours a year after holidays. But nobody bills every hour: sales calls, admin, internal projects and learning eat a lot. If 60% of time is billable, that's about 4,200 billable hours. 420,000 ÷ 4,200 = 100 per billable hour just to break even.
Many founders are shocked by this number. Any price below it loses money on every hour, however busy you are.
Cost-plus pricing: simple and safe, with a ceiling
Cost-plus means taking your cost and adding a margin. With the numbers above and a 40% margin, you'd charge 140 an hour, or estimate a project in hours and multiply.
Strengths: it's transparent, easy to explain and guarantees you cover costs – if your estimates are right.
Weaknesses:
- Estimation risk is all yours. A project scoped at 100 hours that takes 160 destroys the margin.
- It punishes efficiency. As you get faster, your price drops.
- It invites comparison with every cheaper freelancer on the internet.
- It caps upside. A piece of work that makes a client a great deal of money is priced the same as one that doesn't.
Cost-plus is the right floor, not necessarily the right price.
Value-based pricing: charging for the outcome
Value-based pricing starts from what the result is worth to the client. If a new checkout flow is expected to raise an online shop's annual revenue substantially, a fee that's a modest fraction of that gain is easy for the client to justify – even if it's far above your cost-plus number.
To do this well you need good discovery. Ask:
- What happens if this project doesn't happen?
- How will you measure success, and what is that worth?
- What have you tried before, and what did it cost?
Strengths: higher margins, alignment with the client's goals, and a reason to get faster.
Weaknesses: it requires trust and credible evidence of results; it doesn't work for commodity tasks; some procurement departments insist on day rates. And value is a range, not a number – you're still negotiating.
A practical middle path many firms use: estimate cost, estimate value, and price somewhere between, closer to value the more confident you are.
Retainer pricing and productised services
Projects end; retainers recur. A retainer is a fixed monthly fee for an agreed scope – a set number of hours, a defined service level, or ongoing responsibility for an outcome (for example, maintaining and improving a website).
Retainers make revenue predictable, which in turn makes hiring and planning less stressful. But they need clear boundaries:
- Define what's included and what isn't. "Unlimited small changes" becomes unlimited.
- Decide what happens to unused hours. Rolling them over indefinitely creates a debt you'll eventually have to pay in work.
- Review scope regularly – quarterly is common – and adjust the fee if the work has grown.
Productised services go a step further: a fixed scope, fixed price and fixed timeline ("SEO audit in two weeks for X"). They're easier to sell and deliver, but only work for repeatable work.
Choosing a service pricing strategy
| Model | Best for | Main risk |
|---|---|---|
| Hourly / day rate | Unclear scope, advisory work | Caps income, rewards slowness |
| Fixed project (cost-plus) | Well-defined projects | Scope creep, bad estimates |
| Value-based | High-impact, measurable outcomes | Requires trust and strong discovery |
| Retainer | Ongoing support, growth work | Scope drift, over-servicing |
| Productised | Repeatable, standardised deliverables | Doesn't fit custom needs |
Most healthy service firms combine two or three: a productised entry offer, project work priced on a mix of cost and value, and retainers for ongoing relationships. We work this way at Mraviko too – fixed-scope projects for builds, retainers for long-term maintenance and growth.
How to raise prices without losing clients
Underpricing compounds: the longer you wait, the bigger the eventual jump. Some practical rules:
- Raise prices for new clients first. They never knew the old price.
- Give existing clients notice – a quarter is reasonable – and explain what's changed.
- Raise regularly and modestly rather than rarely and dramatically.
- Expect to lose a few clients. If nobody ever objects, your prices are probably still too low.
- Track win rates. Winning almost every proposal is a sign of underpricing, not of excellence.
Pricing checklist for service businesses
- Fully loaded cost per billable hour calculated
- Realistic utilisation rate (not 100%) used
- Target margin set and applied as a floor
- Discovery questions focused on client value
- Scope, exclusions and change process written into every proposal
- At least one recurring offer (retainer or subscription)
- Prices reviewed at least once a year
Pricing is the most powerful lever a service business has, and the least used. Get your cost floor right, sell outcomes rather than hours wherever you can, and build recurring revenue to smooth the peaks and troughs. Learning how to price a service business is less about finding the perfect formula and more about deciding, deliberately, what your work is worth.
