Running a business
How to Price Your Service: A Simple Method for Small Businesses
Price your service with real numbers: add up costs, count billable hours, find your break-even rate, plan for self-employment tax, and check the local market.
Last reviewed October 20, 2026 · 6 min read
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Pricing is one of the hardest calls for a new owner. A simple formula takes much of the guesswork out.
What you'll need
A list of your monthly business costs
A realistic count of billable hours per month
Your target pay for yourself
A few local competitor prices for similar work
What's the simplest way to price a service?
Add up your monthly costs. Include rent, software, insurance, phone, vehicle, supplies, licenses, and payment fees. Add the pay you need to take home.
Count your billable hours. These are hours you can charge a client for. Admin, travel, sales calls, and bookkeeping usually aren't billable.
Find your floor price. Divide monthly costs by billable hours. That's the least you can charge per hour to cover costs.
Add profit and a buffer. Add a margin for slow months, taxes, equipment, and growth.
Check the market. Look at what local customers pay for similar work. If you're far above, show why your service is worth more. If you're far below, you may be leaving money on the table.
Test and review. Track how customers respond. Review prices at least once a year and whenever your costs change.
What's the formula?
Floor rate per hour = total monthly costs (including your pay) ÷ billable hours per month
The SBA uses a related formula for break-even in units:
Fixed costs ÷ (price − variable cost per unit) = break-even point in units
Fixed costs don't change with how much you sell, like rent or insurance.
Variable costs go up with each job, like materials or mileage.
Break-even is where total cost equals total revenue. No loss, no gain.
The SBA offers a free break-even calculator on its startup costs page.
Fill-in worksheet
LineA. Monthly business costs
Your number$
LineB. Monthly pay you need
Your number$
LineC. Total (A + B)
Your number$
LineD. Billable hours per month
Your number
LineE. Floor rate (C ÷ D)
Your number$ per hour
LineF. Margin for profit and buffer (%)
Your number
LineG. Your rate (E plus F)
Your number$ per hour
| Line | Your number |
|---|---|
| A. Monthly business costs | $ |
| B. Monthly pay you need | $ |
| C. Total (A + B) | $ |
| D. Billable hours per month | |
| E. Floor rate (C ÷ D) | $ per hour |
| F. Margin for profit and buffer (%) | |
| G. Your rate (E plus F) | $ per hour |
How do taxes affect my price?
If you're self-employed, you pay both halves of Social Security and Medicare. The IRS sets self-employment tax at 15.3%: 12.4% for Social Security and 2.9% for Medicare. It applies if your net self-employment earnings are $400 or more.
You'll also owe income tax. The IRS says sole proprietors and partners generally make quarterly estimated payments if they expect to owe $1,000 or more. Build these into your price so tax time isn't a shock.
If you run an LLC in California, add the $800 annual FTB tax and any local license costs to your fixed costs.
Hourly, flat fee, or package?
MethodHourly
Works well whenJobs vary a lot in size
Watch out forClients may worry about the clock
MethodFlat fee per job
Works well whenYou can predict the work
Watch out forScope creep; write down what's included
MethodPackage or monthly plan
Works well whenWork repeats every month
Watch out forSet clear limits and renewal terms
| Method | Works well when | Watch out for |
|---|---|---|
| Hourly | Jobs vary a lot in size | Clients may worry about the clock |
| Flat fee per job | You can predict the work | Scope creep; write down what's included |
| Package or monthly plan | Work repeats every month | Set clear limits and renewal terms |
Whatever you pick, base it on the same floor rate. A flat fee is just your hourly floor times the hours you expect, plus your margin.
What it costs
Setting a price costs nothing but time. The SBA's break-even calculator is free. Want a second look at your idea and pricing? Our free Idea Report is a good place to start.
How long it takes
TaskGather your costs
TimeAn hour or two with bank statements
TaskRun the formula
TimeMinutes
TaskCheck local prices
TimeAn afternoon
TaskReview prices
TimeAt least yearly
| Task | Time |
|---|---|
| Gather your costs | An hour or two with bank statements |
| Run the formula | Minutes |
| Check local prices | An afternoon |
| Review prices | At least yearly |
This is general information, not legal or tax advice. Fees and rules change, so please check the linked official pages before you file or pay.
Questions people ask
How do I figure out my minimum hourly rate?
Add up your monthly costs, including what you need to pay yourself. Divide by the hours you can actually bill in a month. That is your floor. Charge above it to make a profit.
What is a break-even point?
The SBA defines it as the point where total cost and total revenue are equal, so there is no loss or gain. Its formula is fixed costs divided by (price minus variable cost per unit).
Should I include taxes in my price?
Yes, plan for them. The IRS says self-employment tax is 15.3% (12.4% Social Security plus 2.9% Medicare) if your net self-employment earnings are $400 or more. Income tax is on top of that.
Should I just charge what competitors charge?
Use competitor prices as a check, not a starting point. The SBA suggests learning what customers pay for alternatives during market research. But your own costs set the lowest price you can charge and stay in business.
We can go over the week with you and pick the change that gives you time back.
Book a Business Boost CallWords to know
Break-even: The point where money coming in equals money going out. No profit, no loss.
Billable hours: Hours of work you can charge a customer for.
Margin: The extra you add above your costs. It becomes profit.
Sole proprietor: One owner running a business with no separate legal entity.
Sources
This is general information for Sacramento and Northern California businesses. We are not attorneys or tax advisors, and this is not legal or tax advice. Check the official sources, and a local pro, before you act.