How to build a pricing model on what the work really costs

Overhead is everything the business pays whether or not a job is running: rent for a yard or office, vehicle finance and insurance, admin wages, phones, software, accounting and tool replacement. If your price does not recover it, the business pays for the work.

The overhead recovery rate spreads those costs across productive hours. Total a normal month of fixed costs, divide by the hours that actually reach a job, and you have the amount every productive hour must carry before it earns any profit. The free overhead rate calculator on this site walks through the same steps.

• Monthly overheads: an average of twelve months, so annual premiums are spread
• Productive hours: people on the work × paid hours × the share that reaches a job
• Overhead recovery rate: monthly overheads ÷ productive hours
• Cost per productive hour: labour cost per hour + overhead recovery rate

This is the most common pricing mistake I see. Markup is profit as a share of cost. Margin is profit as a share of price. Add 25% to a cost of R10,000 and you charge R12,500. Profit is R2,500, which is 25% of cost but only 20% of the price. If you believe you run at 25% margin, you are short by five percentage points on every job.

To price for a target margin, divide instead of multiplying: price = total cost ÷ (1 − target margin). For a 25% margin on R10,000 of cost, the price is R13,333, not R12,500. The free markup and margin converter shows the difference for any percentage.

Small jobs are where poor pricing shows first. A one-hour callout is rarely an hour: there is the call, the travel there and back, the supplier stop, the invoice and the follow-up. Each of those hours carries labour cost and overhead, plus vehicle cost per kilometre. Price the visit on time on site alone and you lose money on it.

A minimum callout fee is worked out the same way as any price: cost the whole callout, then divide by (1 − target margin). A day rate is the cost per productive hour multiplied by the productive hours in a day, with margin applied. Publish both and say them on the phone before you go. The free callout cost check does this for your own figures.

Changes to scope should be priced with the same model as the original job, agreed in writing before the extra work starts, and invoiced with the next stage payment. Variations priced on the spot, from memory, are where a healthy job quietly turns thin.

VAT changes the quote, not your cost base. If you are a VAT vendor, quote the price excluding VAT, then the 15% VAT, then the total, and show your VAT number on tax invoices. If you are not registered, do not charge VAT and say so on the quote. Registration is compulsory once taxable supplies exceed the threshold in any 12 months (SARS applies R2.3 million from 1 April 2026, subject to legislation), so check where you stand with your tax practitioner.

A pricing model is only as good as the costs in it. Recalculate when something material changes: a new vehicle, a new hire, a rent increase, a wage adjustment, or a quiet stretch that cuts productive hours. As a rule, review the model at least every six months and every time a fixed cost moves by more than a few thousand rand.

The model is built in a spreadsheet you already have, so updating it is a matter of changing the inputs and letting the prices follow. That is the point of handing it over: the business keeps pricing from cost long after the engagement ends.