How to price a service business without guessing

General information, not advice. This article is general information for UK small businesses. It is not legal, tax or financial advice. Rules and figures change, so check the official guidance listed at the end, or speak to a qualified adviser, before you act. Figures checked October 2026.

Ask a salon owner, a cleaner, a bookkeeper or a physio how they set their prices and the honest answer is often "I looked at what others charge". That gives you a starting point, but it says nothing about whether the price covers your costs, or whether your customers would happily pay more. A good price comes from three checks: cost, market and customer.

Start with the full cost of the people who deliver the service, not just their hourly wage. Include:

• wages (at least the National Living Wage of £12.71 an hour for workers aged 21 and over from April 2026);
• employer National Insurance (15% on earnings above £5,000 a year in 2026 to 2027);
• employer pension contributions;
• holiday pay, training and time spent on things you cannot charge for.

Then add your overheads: rent, software, insurance, marketing, accountancy and your own pay.

The step most owners skip is billable hours. Nobody bills every paid hour. Travel, admin, cancellations, cleaning and quiet periods all eat into the day. Divide your total yearly costs by the hours you can realistically charge, not by the hours you are open.

A made-up example: a two-person studio costs £96,000 a year to run, including both owners' pay. They are open 3,600 hours between them, but can charge for about 2,400. Their real cost is £40 per billable hour (£96,000 ÷ 2,400), not the £26.67 it looks like if you divide by opening hours.

Cost is the floor, not the price. On top of it you need a margin for profit, for slow months and for reinvesting in the business. Decide the margin you want first, then work out the price:

price = cost per billable hour ÷ (1 − target margin)

With a £40 cost and a 30% target margin, the price is about £57 an hour (£40 ÷ 0.7). If you are VAT registered and sell to consumers, add VAT on top of that to get the price customers see.

Now look outward. List five to ten businesses your customers would genuinely compare you with, and note what they charge and what is included. If your number sits well above theirs, you need a clear reason: more experience, better results, faster availability, a nicer setting, better follow-up. If it sits well below, you may be leaving money on the table.

Then ask customers directly. A simple willingness-to-pay survey asks four questions about a specific service:

1. At what price would it be so cheap that you would doubt the quality?
2. At what price would it feel like a bargain?
3. At what price would it start to feel expensive, though you might still pay?
4. At what price would it be too expensive to consider?

Where the answers cluster tells you the range most customers find acceptable. It is a guide, not a promise of what people will do, so combine it with a real test.

• Hourly or day rate. Simple and fair for work that varies, but it caps what you can earn and makes customers watch the clock.
• Fixed price or packages. Easier for customers to say yes to. Build in a margin for jobs that overrun.
• Memberships or retainers. Steadier cash flow. Be clear about what is included and how to cancel.
• Value-based pricing. Price on the result for the customer, not your time. It works best when the result is clear and measurable.

Many service businesses use a mix: a fixed price for the common jobs and an hourly rate for the unusual ones.

Since 6 April 2025, under the Digital Markets, Competition and Consumers Act, UK businesses selling to consumers must include unavoidable fees in the headline price. Showing a low price and adding a compulsory booking or admin fee later is not allowed. Genuinely optional extras can be shown separately. The Competition and Markets Authority has published guidance for businesses on how to show prices clearly.

• Test a new price on new customers or one service first, rather than everything at once.
• Give existing customers notice, and explain what they get for the price. Keep it short and confident.
• Watch the right numbers: not only how many people buy, but revenue and margin per customer. A slightly lower conversion rate at a higher price can still leave you better off.
• Review prices at least once a year, and whenever your costs jump, such as when wage rates rise each April.

Pricing Lab in NAVIZIX works out the margin on each service from its variable cost and a share of your fixed costs, runs the four-question willingness-to-pay survey and calculates the price ranges from the answers. You can also test two to six prices on your own website with a small snippet and compare conversion and revenue per visitor before you commit to a change.

• GOV.UK: National Living Wage increases to £12.71 per hour
• GOV.UK: Rates and thresholds for employers 2026 to 2027
• Competition and Markets Authority: Unfair commercial practices (CMA207)
• Competition and Markets Authority: Providing clear and accurate information about prices: summary
• U.S. Small Business Administration: Plan your business (break-even and cost-based pricing)