Pricing Your Services for Profit: A Simple Method
Short answer: price your services from your costs up, then check against the market. Add up a year's overheads and the salary you need, add the profit you want, and divide by the hours you can really bill. That gives your minimum hourly rate. Turn it into packages where you can, add VAT correctly if you are registered, and review your prices every year.
Our recent Business tips covered cash flow, payment terms, forecasting, funding and working capital. All of them work better when the price is right in the first place.
Step 1: know your real costs
Overheads: rent, software, insurance, phone and data, vehicle costs, marketing, accounting fees and bank charges, for a full year.
Your own salary: what you need to take home, plus the PAYE that goes with it if you pay yourself through the company.
Direct costs per job: materials, travel, subcontractors and anything you buy for a specific client.
Step 2: count the hours you can really bill
A working year is not 52 full weeks of billable work. Take off leave, public holidays, admin, quoting, marketing and travel. Many service businesses bill 25 to 30 hours in a 40-hour week, for about 46 weeks a year.
Step 3: work out your hourly rate
Hourly rate = (yearly overheads + your salary) ÷ (1 − profit margin) ÷ billable hours
An example. A consultant has overheads of R180,000 a year and needs a salary of R480,000. She can bill 30 hours a week for 46 weeks: 1,380 hours. To break even she needs R660,000 ÷ 1,380 = about R478 an hour. For a 15% profit margin: R660,000 ÷ 0.85 ÷ 1,380 = about R563 an hour, excluding VAT. Add direct costs per job on top.
Step 4: check it against the market
Look at what similar businesses charge, then decide where you sit. If your number is far above the market, look at costs, billable hours or the kind of client you serve before you cut the price. If it is far below, you may be leaving money on the table.
Step 5: sell packages, not only hours
Fixed packages or monthly retainers are easier for clients to buy and steadier for your cash flow. Price each package from the hours it usually takes at your rate, with a clear list of what is included and what is billed extra.
Markup and margin are not the same
Markup on cost | Profit margin on the price |
|---|---|
25% | 20% |
33% | 25% |
50% | 33% |
100% | 50% |
A 50% markup gives a 33% margin, not 50%. Decide which one you are aiming for before you set a price.
VAT on your prices
If you are a VAT vendor, prices you advertise or quote must include VAT. Alternatively, show the VAT-exclusive price, the VAT amount and the VAT-inclusive price together, with equal prominence. At 15%, the R563 rate in our example becomes about R647 including VAT.
Review your prices every year
Costs rise every year. Review prices at least once a year, give existing clients written notice of a change, and explain what they get. A small yearly increase is easier for clients than a large one every few years.
Frequently asked questions
How do I work out my hourly rate?
Add your yearly overheads and the salary you need, divide by one minus your target profit margin, then divide by the hours you can realistically bill in a year.
How many hours a year can a service business bill?
Many bill 25 to 30 hours a week for about 46 weeks, after leave, holidays, admin and marketing, which is roughly 1,150 to 1,400 hours a year.
What is the difference between markup and margin?
Markup is profit as a share of cost; margin is profit as a share of the selling price. A 50% markup gives a 33% margin.
Do my prices have to include VAT?
If you are a VAT vendor, advertised and quoted prices must include VAT, or show the VAT-exclusive price, the VAT and the VAT-inclusive price together with equal prominence.
How often should I increase my prices?
Review them at least once a year and give clients written notice before a change takes effect.
Related guides
Know your numbers before you set a price
Your management accounts show your real overheads, margins and profit every month. Our team keeps your bookkeeping, VAT, payroll and tax up to date in Xero for one monthly fee: 1% of your business turnover, from R79 a month excluding VAT. See our Pricing page or book a free meeting.
Sources: Cliffe Dekker Hofmeyr: prices advertised or quoted must include VAT.
This article is general information, current at November 2026. It is not advice for your specific situation.
