Pricing: Cost Floor, Market Ceiling, and Where to Stand

Your price has a floor you can compute and a ceiling you can discover, and the whole exercise takes twenty minutes plus three phone calls. Most new owners skip the math, copy a competitor’s number, shave 15% off it to feel safe, and spend two years wondering why working harder never produces money. This page is the math, the calls, and where to stand.

The floor: what your hour must earn (20 minutes)

The floor is the price below which the business pays you less than a job would. Four inputs:

1. Target take-home. What you need to earn, after business expenses and taxes, to live. Not a dream number — the replace-your-job number.

2. Annual overhead. Insurance, software, phone, vehicle, supplies, licenses, annual report fees. List them for real; for most solo service operators it lands between $500 and $1,500 a month. If you want a sanity check, here’s the boring stack a properly-run year-one service business carries — the same numbers quoted on the pages where each one lives:

Line item	Typical range	The page
General liability insurance	$40–$90/mo	1.2
Annual report + license fees	$5–$70/mo averaged	1.1
Website + domain	$0–$25/mo	3.5
Card fees, if you take cards	~3% of carded revenue	2.2
CPA, year one	$25–$60/mo averaged	2.3
Payroll service, once you hire	$20–$60/mo	5.2
Phone, software, supplies, vehicle	the rest — yours to list	—

3. The tax set-aside. The system in page 2.3 sweeps 25–30% of every deposit — revenue, not profit, because simple survives contact with a busy week. The floor math below uses the same base, so the two pages agree.

4. Realistic billable hours. Here’s where the reader in the revision note went wrong, and where most people do: you cannot bill 40 hours a week. Quoting, driving, invoicing, email, supply runs, no-shows, and the weekly close eat 30–50% of a solo operator’s time, and that’s when you’re busy. Use 25 billable hours a week as the default, and 48 working weeks (you will take time off, or it will be taken from you). That’s 1,200 billable hours a year. If your first year’s calendar says you’re billing less, use your real number — the floor only protects you if it’s honest.

The worked example

Sam runs a one-person home-organizing business.

Input	Number
Target take-home	$60,000
Annual overhead	+ $7,800
What Sam must keep	$67,800
Revenue needed, after the 25% sweep (÷ 0.75)	$90,400
Billable hours (25/wk × 48 wks)	÷ 1,200
Floor	≈ $75/hour

Two things to notice. The 0.75 division comes last and applies to everything, because page 2.3’s sweep takes its cut from every deposit before you see it. (Yes, that over-saves a little — the surplus comes back at filing time, which is the right direction for a year-one error.) And the divisor is 1,200 — not the 2,000 hours Sam will actually work. Divide by hours worked and you get $45, charge $50 feeling prudent, and lose money on every job while “staying busy.” If you price by the job instead of the hour, same math: estimate the hours a job really takes — including the quote visit and the drive — and multiply by your floor rate. A “$400 job” that consumes eight total hours is a $50/hour job, whatever the invoice says.

The ceiling: three calls (one hour)

The ceiling is what established competitors charge customers like yours. It’s not published, but it’s not hidden either — it’s three quote requests away. Pick three competitors who look established (real reviews, been around, not the cheapest ad), and either request a quote for a typical job as a customer would, have a friend do it, or simply ask peers in your trade — most will tell another operator their rates over coffee. You’re not looking for a secret; you’re looking for the range.

When the numbers come back, the highest credible one is your working ceiling. Now you have a corridor: Sam’s floor is $75; the three calls came back $90, $110, and $135; the corridor is $75–$135.

Where to stand: above the middle

Default: price in the upper half of the corridor. Sam’s default is $110–$120, not $80. New owners flinch at this because their instinct says the new business must be the cheap one. That instinct is backwards, for a specific reason: the customers worth having aren’t buying the lowest number, they’re buying certainty — that you’ll show up, finish, communicate, and fix what’s wrong. The cheapest quote signals the opposite of certainty. You compete by answering the phone, quoting in writing within a day, and doing what you said — all covered in chapter 04 — not by donating your margin.

The supporting math: at $110, Sam matches $80-Sam’s revenue on 27% fewer booked hours — so Sam can lose a chunk of quotes to price and come out even, with hours left over for the customers who said yes. And the yes-side skews better too: clients who pick the certain option over the cheap one pay invoices on time, which cheap-seeking clients reliably don’t.

If-this-then-that:

• Winning fewer than 1 in 4 quotes after 10+ quotes → drop one step toward the middle, or fix the quote response time first (it’s usually that).
• Winning more than 3 in 4 → you’re under the market; raise 10–15% on the next quote and watch what happens. New customers never know the old price.
• Below your floor for any sustained reason → that’s not a price, it’s a countdown. Raise it or close it; there is no third option.

Discounts: scope, never rate

The decision rule, worth memorizing verbatim: you may discount scope, never rate. A customer who can’t afford the price can buy less — fewer rooms, a phase-one, a smaller package — at the same rate per unit of your time. The moment you cut the rate, you’ve taught this customer your price is theater, guaranteed the referral they send expects the fake number, and worked below floor by choice.

I can't move on the rate — that's what it costs me to do this
right. What I can do is adjust the scope to fit your budget.
If we [cut X / phase it / start with Y], that brings it to
$[smaller number]. Want me to write that up?

Saying the number: the price is the price

Most underpricing happens out loud, in the pause after you say the number. The script:

For [the job as you've described it], the price is $[number].
That includes [the two or three things they care about].

Then stop talking. No “but I’m flexible,” no “does that work for your budget?”, no nervous laugh. Silence after a price is the customer thinking, and interrupting it with a discount is bidding against yourself in an auction with one bidder. If they push back, you have the scope script above. If they walk, the corridor math already priced that in.

Revisit twice a year

Calendar it: twenty minutes, every six months. Overhead crept, the market moved, you got better. The floor recomputes in five minutes once the spreadsheet exists, and the ceiling refreshes with one call. New customers just get the new number — they never knew the old one.

Existing customers — especially recurring ones, where most of the dread lives — get 30 days’ written notice, in writing because it removes the conversation you’re dreading. The note:

Hi [name] — a heads-up rather than a surprise: starting [date,
30+ days out], my rate for [service] goes from $[old] to $[new].
Costs have moved and I'd rather adjust the price than the quality.
Nothing else changes — same schedule, same work. Thanks for being
one of the people who made year one work.

If a longtime customer calls unhappy, the reply is one line: “I understand — and I’d rather lose a little margin-math than lose you, so take the 30 days at the old rate while you decide. The new rate is what it costs me to keep doing this right.” Most stay. The few who leave over a fair raise were priced below floor — which means each one that walks is a raise too. The most expensive habit in a young business is letting year-one prices survive into year three out of nothing but momentum.