Let me ask you something.
You just finished a job. Good work, client’s happy, check cleared. You should feel great.
But there’s this quiet voice in the back of your head that keeps asking: Did I charge enough for that?
You don’t say it out loud. You move on to the next job. But it doesn’t go away.
If that sounds familiar, you’re not alone, and you’re probably right.
The $48 Phone Call
A few months ago I was sitting with a plumbing contractor solo operator, great reputation, slammed with work. On paper he looked fine. But when we ran the numbers, he was netting about $18 an hour after expenses.
Eighteen dollars… In Orange County. For a licensed plumber with 12 years of experience.
He wasn’t lazy. He wasn’t disorganized. He was just using the same prices he charged five years ago, plus a little extra when the job felt big. No system. Just gut feel.
That gut feel was costing him real money every single week.
You’re not undercharging because you’re bad at business. You’re undercharging because you never built a system that tells you what to charge.
Why Service Business Owners Undercharge
It’s not a confidence problem. It’s a math problem. Most service business owners price based on:
- What they charged last year (plus a little more)
- What the competition seems to be charging
- What they think the client will say yes to
- A number that “feels right”
None of those are wrong to consider. But none of them are your actual costs.
Here’s what kills margins in service businesses: the costs you don’t see every time you quote a job.
The Real Cost of Running Your Business (Most People Miss Half of This)
Before you can price correctly, you have to know your true cost per job. That means adding up:
1. Direct Labor
Not just wages but the loaded cost also. That means wages + payroll taxes + workers’ comp + any benefits. If you have employees, this number is higher than you think.
2. Materials & Subcontractors
You probably track this. But are you accounting for waste, returns, and the time you spend buying materials? Your time costs money too.
3. Vehicle & Equipment
Gas, insurance, maintenance, depreciation. If you’re driving 20,000 miles a year for work, that’s not free. It’s a real cost on every job.
4. Overhead — The One That Gets People
Business insurance. License renewals. Accounting and software. Marketing. Your phone bill. The new drill press you bought on credit. These costs are real and they hit whether you’re on a job or not.
When you quote a job, you have to be recovering a portion of these overhead costs not just covering materials and labor.
5. Your Own Time
This one’s personal. When did you last pay yourself a real wage? If you’re working 60 hours a week and taking home $4,000 a month, your hourly rate is embarrassing no matter how much revenue you’re generating.
Take your total monthly overhead (insurance, subscriptions, vehicle, office, everything) and divide it by the number of billable hours you work per month. That number is your overhead rate per hour. It needs to be baked into every single job you quote. If you don’t know your overhead rate, you’re guessing — and guessing almost always means undercharging.
How to Fix Your Pricing — Without Freaking Out Your Clients
Here’s the part people are afraid of: raising prices.
They think if they raise their rates, clients will leave. Some will. But let me tell you what I’ve seen over and over again the clients who leave when you raise prices are almost always your most draining clients. The good ones stay because they hired you for your quality, not your discount.
Step 1: Build a Real Job Cost Estimate
For your next job, before you quote anything, write out every cost:
- Labor (your hours × loaded cost per hour)
- Materials (with 5–10% buffer for waste)
- Vehicle / equipment allocation
- Your overhead rate × estimated hours
- Your profit margin target (aim for 15–25% net, not gross)
Step 2: Stop Quoting From Memory
Build a simple pricing sheet — even in Google Sheets — that calculates your minimum price automatically based on job type. When you quote from memory, you miss costs. When you quote from a system, you protect your margin every time.
Step 3: Raise Slowly on New Clients, Explain on Existing Ones
You don’t have to raise every client’s rates overnight. Start with new clients. Then, when you’re ready to adjust existing clients, be direct: “I’ve been reviewing my costs and my prices haven’t kept up with what it actually costs to do quality work. Starting [date], my rates are going to [new rate]. I wanted to give you time to plan.” That’s it. No apology. Just clarity.
“The goal isn’t to be the cheapest option. The goal is to be worth what you charge and to charge what you’re worth.”
Step 4: Know Your Walk-Away Number
Every job has a minimum. Below that number, you’re losing money or working for less than minimum wage. Know that number before you answer any call. It changes everything about how you negotiate.
What Happens When You Get Your Pricing Right
You work fewer hours. You make more money. You stop chasing the next job just to keep up. You start turning down bad-fit clients without panic.
You go from busy and broke to busy and building.
That’s the shift. It doesn’t happen overnight, but it starts with one decision to stop guessing.
Ready to see what your jobs are actually costing you?
Book a Free 30-Minute Financial Clarity Call with Ivan at QuickCuenta.
No pitch. Just numbers.
quickcuenta.comFrequently Asked Questions
Q: How do I know if I’m undercharging right now?
A: Run a simple check: take your revenue from last month, subtract all your costs (labor, materials, vehicle, overhead — everything), and see what’s left. If your net is under 10%, or if you’re not paying yourself a real wage, you’re undercharging.
Q: What profit margin should service businesses target?
A: It depends on your trade and market, but a healthy service business should aim for 15–25% net profit margin. Many small contractors are running 5% or below without realizing it.
Q: What if I raise my prices and lose clients?
A: Some will go. That’s okay. Clients who leave because of a fair price increase are often your lowest-margin, highest-maintenance clients. The right clients the ones you want will stay because they value your work.
Q: I don’t have an accountant. Where do I start?
A: Start with what you know. List every recurring cost your business has monthly. Then divide that by your billable hours. That’s your overhead rate. You can do this in 30 minutes with a spreadsheet. Or we can walk through it together on a free call.
Q: How often should I review my pricing?
A: At minimum, once a year — ideally twice. Your costs change: fuel, materials, insurance, wages. Your prices need to keep pace or your margin silently shrinks.
