The Pricing Reality Check
Most service businesses underprice. They set rates based on what competitors charge or what feels acceptable, not on what the business actually needs to be healthy.
This calculator works backwards from your target margin. If you want to make 15% after paying yourself, after overhead, after direct costs—what does revenue need to be?
The Owner Salary Trap
Many owners don't include their own salary in pricing calculations. They look at profit and think "that's my pay." But that's not profit—that's compensation for your labor.
Real profit is what's left after you pay yourself a market salary for the work you do. If you couldn't afford to hire someone to replace you, your pricing is subsidized by your unpaid labor.
Why Target Margins Matter
The CFMA 2025 Construction Financial Benchmarker shows median net profit margins of 6.7% for construction companies. Service businesses typically target 10-20% net margins to be healthy.
- 5% margin: Survival mode. One bad job wipes out your profit.
- 10% margin: Stable but tight. Limited room for error or investment.
- 15% margin: Healthy. Can absorb problems and fund growth.
- 20%+ margin: Strong. Building real wealth and business value.
How to Raise Prices
- Start with new customers — Existing customers can stay at current rates while you test higher prices
- Raise on renewals — Annual contracts are natural price adjustment points
- Add value first — Bundle in something new, then raise the total price
- Fire unprofitable customers — Sometimes the right price is "we can't do this work"
Sources
- CFMA Construction Financial Benchmarker — Industry profit margin benchmarks
- Bureau of Labor Statistics Occupational Employment Statistics — Market salary data for owner compensation analysis
- Investopedia: Profit Margin — Margin calculation definitions
- U.S. Small Business Administration — Pricing and cost calculation resources