How to Price Your Proposal (And Actually Make Money)

You quoted the work. You did the work. And somehow you still came up short.

That’s not bad luck — it’s a pricing problem. Specifically, it’s the gap between what you charged and what the project actually cost you. Most freelancers and small business owners set a price based on gut feeling, a competitor’s rate, or a quick hourly calculation. None of those account for the real layers of cost that eat into every project.

The formula below fixes that. It starts with your base cost and adds four layers — each one covering a type of expense that most people miss. The result is a price that actually protects your margin.

The pricing formula

Each layer builds on the previous one. Skip any of them and your margin shrinks — or disappears entirely.

1. Start with your base cost

This is the direct cost of delivering the work: materials, subcontractors, direct labor hours. It’s the number most people start and stop at.

For a service business, your base cost is typically your hourly rate multiplied by estimated hours. For product-based work, it’s materials plus manufacturing plus direct labor.

The problem? This number only covers the work itself. It doesn’t cover anything else it takes to run your business.

2. Add your overhead

Overhead is every cost that exists whether you’re working on a project or not: rent, software, insurance, accounting, phone, internet. These costs don’t disappear between clients — and if you don’t include them in your quotes, you’re paying them out of your profit.

3. Add hidden & indirect costs

These are the costs that don’t show up on any invoice but drain your time and money on every project: admin work, client meetings, revision rounds, research, invoicing, taxes, learning time.

Most freelancers absorb these silently. Over a year, they add up to thousands of dollars in uncompensated work.

4. Add a risk buffer (contingency)

Projects run over. Scope grows. Requirements change mid-project. If your quote has zero room for surprises, every unexpected hour comes straight out of your profit.

A risk buffer isn’t padding — it’s calculated protection. The percentage depends on the project: how clear is the scope, how experienced is the client, how much uncertainty is involved.

This subtotal is your true cost — the break-even point. Below this number, you lose money.

5. Your true cost (break-even)

This is the minimum you need to charge to cover all your costs. Charge less than this and you’re working at a loss — even if it doesn’t feel like it at first.

But breaking even isn’t the goal. You need profit to grow, to save for slow months, and to invest back into your business.

6. Add your profit margin

Profit margin is what’s left after all costs are covered. It’s not a luxury — it’s what makes your business sustainable.

How much depends on your industry and positioning. Freelance services typically target 20–40%. Agencies 15–30%. Construction 10–20%.

The mistakes that kill proposals

Pricing from hourly rate alone — your hourly rate doesn’t include overhead, hidden costs, or a buffer. It’s a starting point, not a final price.

Copying a competitor’s price — you don’t know their cost structure. Their price might be losing them money too.

Forgetting overhead exists — rent, software, and insurance don’t pause when you’re between projects.

No contingency — scope always grows. If your quote has zero buffer, every surprise is a loss.

Treating margin as optional — profit isn’t greed. It’s what keeps your business alive in slow months.

Calculate your own numbers

The formula is simple. The hard part is knowing your actual numbers for each layer. That’s what the Academy is for — eight tools and guides, one for each part of the pricing puzzle.