Most service business owners set their prices by guessing. They look at one competitor, pick a number that feels right, and hope it works out. Six months later, they are busy but broke. The problem is not the work. It is the maths behind the price. By the end of this guide, you will know exactly how to set rates that pay you properly and grow your business.
What You Need Before You Start
Before you set a single price, gather these numbers:
- Your annual business costs (insurance, rego, tools, fuel, phone, software)
- Your target personal income (what you want to take home after tax)
- How many hours you can actually bill per week (hint: it is less than 40)
- Your superannuation obligation (12% from 1 July 2025)
- The going rate for your trade in your area
Write them down. Guessing here defeats the whole exercise.
Step 1: Add Up Every Cost Your Business Carries
List every expense your business pays in a year. Include things people forget:
- Vehicle costs (fuel, rego, servicing, tyres)
- Insurance (public liability, income protection, tools)
- Phone, internet, and software subscriptions
- Accounting fees
- Work clothes and safety gear
- Tool replacement and repairs
- Marketing (website, ads, signage)
- Licences and trade registrations
Add them all up. This is your annual overhead. For most solo tradies, this sits between $30,000 and $60,000 per year.
Step 2: Decide What You Want to Earn
This is the number most people skip. They think "whatever is left over" is fine. It is not.
Pick a clear take-home target. If you want $90,000 in your pocket after tax, you need to earn more than that to cover tax and super.
A rough formula: Take-home target + 30% for tax and super = your gross income target.
So $90,000 take home means roughly $117,000 gross.
The ATO website has calculators that give you exact numbers for your situation.
Step 3: Work Out Your True Billable Hours
This is where most pricing falls apart. You do not bill 40 hours a week. Nobody does.
Subtract time for:
- Travel between jobs
- Quoting and admin
- Buying supplies
- Sick days and holidays (you still need to eat)
- Quiet weeks with no bookings
Most solo operators bill 25 to 30 hours per week. Over 48 working weeks (allowing for holidays), that gives you 1,200 to 1,440 billable hours per year.
Be honest here. Overestimating billable hours is the number one reason service businesses underprice.
Step 4: Calculate Your Minimum Hourly Rate
Now the maths is simple:
(Annual costs + Gross income target) / Billable hours = Minimum hourly rate
Example: ($45,000 costs + $117,000 income) / 1,300 hours = $124.60 per hour
That is your floor. Below that number, you lose money. You still need a profit margin on top for business growth, equipment upgrades, and a buffer for quiet months.
Add 15% to 25% margin: $124.60 x 1.20 = roughly $150 per hour.
If that number surprises you, good. Most tradies charge less than they should because they never did this calculation.
Step 5: Test Your Price Against the Market
Check what others charge in your area and trade. If your rate is:
- Below market: You are probably undercharging. Raise to at least the market average.
- At market: Good. Your margins should be healthy if your maths is right.
- Above market: Make sure your service justifies the premium. Better communication, faster response, and cleaner finish all support higher rates.
You do not need to be the cheapest. You need to be worth what you charge.
Should You Quote Hourly or Fixed Price?
Both have a place.
Hourly works for: Jobs with unknowns (repairs, diagnostics, maintenance). It protects you when the scope changes.
Fixed price works for: Defined jobs where you control the variables. It rewards speed and skill. Customers like knowing the total upfront.
Many service businesses use a mix. Fixed quotes for standard jobs. Hourly for complex or open-ended work.
If you track your time on fixed-price jobs, you will quickly learn which jobs earn above your rate and which ones eat your profit. A good CRM system helps you track this without spreadsheets.
When Should You Raise Your Prices?
Materials, fuel, and insurance go up every year. Your prices should too.
Good times to raise rates:
- Every 12 months minimum. Even a 5% increase keeps pace with inflation.
- When you are fully booked. If you cannot take on more work, your price is too low.
- When costs jump. Fuel spikes, insurance renewals, and award wage increases all justify a rise.
- When you add value. Faster response times, better guarantees, or new services warrant higher pricing.
Tell your regular customers early. "From 1 July, our rates will increase by 5% to cover rising costs." Most customers expect annual increases. The ones who leave over a small rise were not your best customers anyway.
Common Mistakes to Avoid
- Copying a competitor's price without knowing their costs. Their overheads, lifestyle, and margins are different to yours. Their price might be wrong too.
- Forgetting non-billable time. If you only bill 25 hours but price as if you bill 40, you are working for free 15 hours a week.
- Racing to the bottom on price. Cheap attracts price shoppers who complain the most and refer the least.
- Never reviewing your numbers. Costs change every quarter. Review pricing at least once a year.
- Discounting without a reason. Every discount trains customers to wait for the next one. Offer value instead of discounts.
Is Pricing Strategy Worth the Effort for Tradies?
Yes. Getting your pricing right is the fastest way to go from "busy but broke" to genuinely profitable. One afternoon with a calculator can add thousands to your annual income without winning a single extra job.
If you want to grow further, building habits that protect your time makes each billable hour count for more.
Want help building a system that tracks your jobs, quotes, and follow-ups so nothing falls through the cracks? Get a free growth plan and we will map it out with you.