How to Price Services Profitably: The Australian Small Business Formula

You're busy. Your clients love you. But at the end of the month, the money doesn't add up.

This is the most common problem we see in Australian service businesses—not lack of clients, but prices that don't actually cover what it costs to run the business.

Pricing isn't about guessing what competitors charge or what "feels right." It's maths. And once you do the maths once, you'll never underprice again.

The Three Numbers You Need

Take out a spreadsheet (or the back of an envelope). You need three things:

1. Your hourly cost to operate (rent, utilities, insurance, software, equipment depreciation, taxes)
2. Your hourly labour cost (your wage + super + payroll tax, if you have staff)
3. Your target profit margin (what you actually want to earn)

Let's work through a real example.

Real Example: A Solo Hairdresser

Annual fixed costs:

• Salon rent: $15,000/year
• Insurance: $800/year
• Utilities: $1,200/year
• Software (booking system, payments): $300/year
• Equipment maintenance: $500/year

Total: $17,800/year

You work 45 weeks per year (7 weeks off for holidays, public holidays, sick days). That's 225 working days. If you see clients 5 days a week, that's 225 billable days per year.

Cost per billable day: $17,800 ÷ 225 = $79/day

If you do 5 clients per day (4-hour services), that's $15.80 per client just to cover rent and overheads. Before you pay yourself anything.

Now add your wage. You want to earn $60,000/year (after tax, super, payroll).

Your labour cost: $60,000 ÷ 225 days = $267/day (or $53 per client)

Total cost per client: $15.80 + $53 = $68.80

If you want a 40% profit margin (standard for service businesses), your price needs to cover that $68.80 cost plus 40% on top.

Minimum price per service: $68.80 ÷ 0.6 = $115

If the market is paying $110, you've got a problem—either your costs are too high, or you need to charge more. Most likely, you're underpricing.

How to Calculate Your Own Numbers

Step 1: List your annual fixed costs

Go through your bank statements and accounting records for the last 12 months. Include:

• Rent (or mortgage if you own the space)
• Insurance (public liability, professional indemnity)
• Utilities
• Software subscriptions (booking, payments, accounting)
• Equipment maintenance and replacement
• Supplies that aren't client-specific (cleaning, towels, furniture)
• Vehicle costs if you're mobile
• Professional development
• Phone and internet

Step 2: Work out your billable hours per year

• Standard weeks per year: 52
• Minus annual leave: typically 4 weeks
• Minus public holidays: 1–1.5 weeks
• Minus estimated sick days: 0.5 weeks
• Minus admin time (not billable): 0.5–1 week

Working weeks: 49–50 per year

If you work 40 billable hours per week, that's 1,960–2,000 billable hours per year.

Step 3: Calculate your hourly cost

Hourly cost = Annual fixed costs ÷ Billable hours

Using our hairdresser example: $17,800 ÷ 1,960 hours = $9.08/hour just for overheads.

Step 4: Add your wage

What do you want to earn per hour? Not gross income—net income (what you actually take home after tax and super).

If you want $60,000/year and you work 1,960 hours, that's $30.61/hour.

Step 5: Set your price

Your price = (Hourly cost + Hourly wage) ÷ 0.6

The 0.6 is your profit target (40% margin). If you want a 50% margin, use 0.5 instead.

($9.08 + $30.61) ÷ 0.6 = $66.15 per hour

If a haircut takes 45 minutes, that's $49.61. Round to $50 or $55 depending on your market.

If a colour + cut takes 2.5 hours, that's $165.38. Round to $160–$170.

Common Mistakes

Forgetting admin time. You're not billing every hour you're at work. Factor in admin, cleaning, client notes, invoicing. It's usually 10–20% of your day.

Underestimating annual leave. Most Australians are entitled to 4 weeks minimum. Add public holidays (11 in most states) and you're losing 5–6 weeks of billable income.

Not accounting for staff. If you employ someone, their cost includes wage, super (11.5%), payroll tax (up to 5% in NSW), and the 25–30% of their time that isn't billable. Add that to your fixed costs, not just their hourly rate.

Forgetting equipment depreciation. A chair costs $800 and lasts 5 years. That's $160/year in your fixed costs. A car costs $40,000 and lasts 7 years. That's $5,700/year.

Ignoring the 40% margin. That's not profit—it's margin. After you pay the ATO, your actual profit is 15–25%. If you're only marking up 20%, you're working at a loss.

What If Your Prices Are Way Off?

If your maths shows you need to charge $150 but the market pays $90, you have three options:

1. Reduce costs. Move to cheaper premises. Switch to more efficient software. Reduce waste. (Often hardest.)
2. Increase volume. See more clients per day or per week. (Only works if you have demand.)
3. Raise prices gradually. Bump by 5–10% every 6 months. Communicate value to regulars. Your best clients will stick.

Most successful service businesses do all three.

The Booking System Angle

Once you know your numbers, pricing becomes strategic. A good booking system—one that shows you how many hours you're actually billing, tracks no-shows, and shows peak times—makes repricing easy. You can see exactly when you're busy and when you're not, and adjust service lengths and pricing accordingly.

The Next Step

Do the maths this week. Write your fixed costs on a spreadsheet. Calculate your billable hours. Work out what you actually need to charge.

Then compare it to what you're charging now.

If there's a gap, you've just found money you're leaving on the table every single day. Close that gap, and watch what happens to your profit.