Most Australian service businesses price based on gut feeling or what competitors charge — and most are leaving money on the table. Your pricing should be based on your costs, your value, and your market. Here are three pricing strategies and how to apply them.
1. Cost-Plus Pricing
The simplest method: calculate your total costs per hour and add a markup.
Formula: Hourly rate = (Annual costs ÷ Billable hours) × (1 + Markup %)
Example for a consultant:
- Annual costs: $120,000 (salary equivalent + super + overheads + insurance + software).
- Billable hours: 1,200 per year (assuming 60% utilisation of 2,000 available hours).
- Cost per hour: $120,000 ÷ 1,200 = $100/hr.
- With 50% markup: $100 × 1.5 = $150/hr.
Best for: Trades, cleaning, bookkeeping — where jobs are similar in scope and clients compare hourly rates.
2. Value-Based Pricing
Price based on the value you deliver to the client, not the time you spend. This is the most profitable approach for skilled professionals.
- A tax accountant who saves a client $30,000 in tax can charge $5,000 for the advice — regardless of whether it took 2 hours or 20 hours.
- A marketing consultant who generates $200,000 in new revenue can justify a $20,000 fee.
How to implement: Quote fixed fees for defined outcomes. Communicate the value (ROI) before quoting the price. Never lead with your hourly rate.
Best for: Consultants, accountants, marketing agencies, IT specialists — where outcomes vary significantly.
3. Market-Rate Pricing
Set your prices relative to competitors. This works when:
- The service is commoditised (cleaning, basic bookkeeping, lawn mowing).
- Clients compare multiple quotes before choosing.
- Differentiation is based on reliability and quality, not unique expertise.
Research competitors' pricing (check websites, request quotes, ask industry peers) and position yourself based on your quality level — premium, mid-range, or budget.
4. Common Pricing Mistakes
- Forgetting to include all costs: Super (12%), insurance, software, vehicle, and leave provisions should all be in your cost calculation.
- Not accounting for non-billable time: Admin, marketing, quoting, and travel eat 30–40% of your week. Don't price as if you bill 40 hours.
- Competing on price alone: Racing to the bottom attracts the worst clients and destroys your margins.
- Not reviewing annually: Costs rise every year (wages, rent, insurance). Your prices should too.
- Discounting too easily: Every 10% discount requires 30%+ more volume to maintain the same profit. The maths rarely works.
5. When to Raise Your Prices
- You're fully booked and turning away work — a clear sign you're underpriced.
- Your costs have increased (wages, super, rent, software) but your prices haven't.
- 1 July each year — align price increases with the new financial year and minimum wage increases.
- When you add new capabilities (certifications, technology, staff) that increase your value.
Key Takeaways
- Cost-plus pricing ensures you cover all costs — don't forget non-billable time.
- Value-based pricing is the most profitable — charge for outcomes, not hours.
- Review and increase prices annually — at minimum, match cost increases.
- If you're fully booked, you're underpriced. Raise rates for new clients immediately.
- Avoid competing on price alone — it attracts bad clients and kills margins.