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There's no single formula that gives you the "correct" price — but there are a few established approaches, and understanding all of them, rather than defaulting to whichever one comes naturally, tends to produce better pricing than any one alone.
Cost-plus pricing: start from what it costs you
Calculate your direct cost (time, materials, subcontracted work) and add a margin on top. This guarantees you're not working at a loss, but on its own it ignores what the market will actually bear — you could be underpricing relative to the value delivered, or overpricing relative to competitors, and cost-plus alone won't tell you which. Our markup calculator and margin calculator handle this calculation directly.
Market-rate pricing: start from what others charge
Look at what comparable providers charge for similar work, and position yourself relative to them — matching, undercutting, or charging a premium based on your specific positioning. This keeps you competitive, but taken alone it ignores your actual costs; a market rate that's common among providers with much lower costs than yours can be a losing price for you specifically.
Value-based pricing: start from what it's worth to the client
Price according to the value or outcome delivered rather than the time or materials spent producing it — most relevant when your work has a clear, quantifiable impact for the client (revenue generated, costs saved, risk avoided). This can produce meaningfully higher prices than cost-plus for the same work, but it requires being able to articulate that value credibly, and it doesn't apply cleanly to every kind of work.
Most sustainable pricing blends all three
A practical approach: use cost-plus to establish your floor (the price below which you're genuinely losing money), check it against market rate so you're not wildly out of step with comparable providers, and look for opportunities to price toward value where the work genuinely justifies it. Relying on only one approach tends to leave money on the table (value-based opportunities missed under a pure cost-plus model) or create real risk (a market rate that doesn't actually cover your costs).
Revisit pricing periodically, not only when forced to
Costs change, the market shifts, and your own experience and reputation grow — a price set a year or two ago may no longer reflect any of the three inputs accurately. Reviewing pricing on a regular cadence, rather than only when a client pushes back or a cost increase forces the issue, keeps it from quietly drifting out of line with reality.