How to price a service: example and calculator
In services, the main cost does not show up on an invoice: it is the time of whoever does the work. That is why so many service companies charge what the competitor charges, or what feels fair, and find out at the end of the month that they worked hard and kept little.
The right math starts with the cost per hour. See what goes into the direct cost of a service, how to allocate fixed costs and a complete example, calculated by the same math as the calculator.
Fictional example
An air conditioning maintenance company for offices
Suggested price per visit
R$357.79
With a 20% margin on the price. Below R$281.66, every sale loses money.
Calculate my priceWhat goes into the direct cost
A direct cost only exists because of each sale. In the calculator, choose “I sell services”.
Included
- Salary and payroll charges of whoever does the work, divided by the productive hours of the month: that is the cost per hour.
- The hours spent on each job, multiplied by the cost per hour.
- Materials used only on that job, such as parts, products or printing.
- Travel, parking and tolls for the customer visit.
- A license or third-party service hired only for that customer.
Not included
- Salaries of whoever manages, sells or answers the phone: they go into fixed costs.
- Rent, accountant, internet and software used by everyone: fixed costs.
- Internal meetings, rework and vacations: they reduce productive hours, they do not add to the cost of the job.
- Sales taxes and fees: they come in as a percentage of the price, not as a cost.
How to allocate fixed costs
In services, fixed costs are divided by the number of jobs in the month: visits, projects, consultations or hours sold. Use the average of the last few months, not the busiest month of the year.
Before allocating, check capacity: hours per job times jobs per month has to fit within the productive hours of whoever does the work. If it does not fit, the volume you entered is optimistic, and the allocated fixed cost comes out smaller than it should.
If the owner delivers the service, the owner's pay goes into the cost per hour, as a salary. If the owner only manages, it goes into fixed costs. What cannot happen is leaving it out.
Complete example: an air conditioning maintenance company for offices
A fictional company, with numbers calculated by the same math as the calculator. The tax percentage is illustrative: for your company, use the effective rate your accountant gave you.
The technician who makes the visits costs R$4,500.00 per month including payroll charges and has 140 productive hours: the hour costs R$32.14. Each maintenance visit takes 3 hours and uses R$35.00 in materials and travel, which makes R$131.43 of direct cost per visit.
The company makes 45 visits per month, which takes 135 of the technician's 140 productive hours: the volume fits the schedule. The fixed costs of R$6,000.00 divided by the visits come to R$133.33 per visit, and the total cost is R$264.76.
With 6% in taxes and a 20% margin, the suggested price is R$264.76 divided by 0.74: R$357.79 per visit, with R$71.56 of profit on each one. The minimum price, with no profit, is R$281.66.
To cover its fixed costs, the company needs 30 visits per month.
A 10% discount would bring the price to R$322.01 and the real margin to 11.8%.
Suggested price per visit
R$357.79
- Direct cost per visit
- R$131.43
- Allocated fixed cost
- R$133.33
- Total cost
- R$264.76
- Minimum price (zero margin)
- R$281.66
- Profit per visit
- R$71.56
- Break-even point
- 30 visits per month
- Direct cost: 36.7%
- Allocated fixed cost: 37.3%
- Taxes: 6%
- Profit: 20%
Pricing pitfalls: service providers
- 1Productive hours are not office hours: take out internal meetings, travel between customers, rework and vacations.
- 2A service with an open scope calls for pricing by the hour or by a package of hours, not a fixed price.
- 3Warranty work and rework use up hours nobody pays for; leave some slack in the hours per job.
- 4ISS (the municipal service tax) and other taxes on services vary by city, activity and tax regime: the effective rate comes from your accountant.
Run the numbers for your own company
Replace the example values with yours and see the suggested price, the minimum price, the break-even point and the effect of a discount. You can save the calculation as PDF and take it to your accountant. Free, no sign-up.
Frequently asked questions
How do I calculate the hourly rate for a service?
Add up the monthly salary and payroll charges of whoever does the work and divide by the productive hours, that is, the hours that actually become delivered work. That is the cost per hour. The price comes next, adding the share of fixed costs, the taxes and the margin, which is what the calculator does.
Should I charge by the hour or by the project?
By the project when the scope is clear and you can estimate the hours; by the hour or by a package of hours when the scope is open. In both cases, the underlying math is the same: hours per job times the cost per hour, plus the direct costs.
Does the owner who delivers the service count as a cost?
Yes. The owner's pay is the salary of the person doing the work. If it is left out, the profit in the calculation is really the owner's pay, and the company has no real profit.
Which tax rate should I use to price services?
The effective rate your accountant gives you. ISS and other taxes on services vary by city, activity and tax regime, and under Simples Nacional (the simplified tax regime for small Brazilian companies) they change with the annex and the revenue bracket. This page deliberately has no tax rate table.
Got the right price? Show it to the people who buy
In an online business round you talk, in short video meetings, with companies that have said they are looking for what you offer. Your company's first round is on us, with just the CNPJ (Brazilian company tax ID).