Price a project from your rate card: roles, hours, bill rates, and cost rates, with contingency, discount, and a gross margin check before you send the quote.
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Roles and hours
RoleHoursBill rateCost ratePrice
$2,400.00
$12,000.00
$3,300.00
Cost rate = what an hour of that person costs you (salary, benefits, and overhead per hour, or a contractor’s rate).
Quote summary
Quote price
$19,470.00
$17,700.00 base + $1,770.00 contingency
Delivery cost
$8,050.00
130 hours
Gross margin
58.7%
$11,420.00 gross profit
Blended rate
$149.77/hr
Price per hour across all roles
At or above your 50% margin target.
Carries the roles, hours, rates, and contingency into the free Quote Generator. Cost rates are never included.
Price from margin, not from the last quote
Most service firms price new work by adjusting the last similar quote. That hides the one number that decides whether the project makes money: gross margin. Two quotes with the same total can have very different margins depending on who does the work.
Putting cost rates next to bill rates shows the margin before the quote goes out, and the price needed to hit your target if you are below it. A discount that looks small against the price can be a large share of the margin, which this calculator makes visible.
Worked example: a three-role project
These are the starting numbers in the calculator above. Each line is hours x bill rate for the price and hours x cost rate for the delivery cost.
Role
Hours
Bill rate
Cost rate
Price
Cost
Project manager
20
$120
$55
$2,400
$1,100
Senior developer
80
$150
$70
$12,000
$5,600
Designer
30
$110
$45
$3,300
$1,350
Total
130
$17,700
$8,050
Adding 10% contingency takes the quote to $19,470. Gross margin is ($19,470 - $8,050) / $19,470 = 58.7%, and the blended rate is $149.77 an hour.
Now give the client a 10% discount. The price falls by $1,947 to $17,523, but cost does not move, so gross profit falls from $11,420 to $9,473: a 17% cut in profit from a 10% cut in price. Margin drops to 54.1%. This is the effect most discount approvals miss.
Margin vs markup
Markup is profit over cost; margin is profit over price. They describe the same profit, so mixing them up in a pricing policy quietly underprices work.
Gross margin
Equivalent markup on cost
Price for $10,000 of cost
25%
33.3%
$13,333
40%
66.7%
$16,667
50%
100%
$20,000
60%
150%
$25,000
To price from a target margin: price = cost / (1 - margin). For the example project, hitting 50% on $8,050 of cost needs a price of at least $16,100, which is how the calculator works out the gap when you are below target.
Setting cost rates that hold up
A cost rate is what one hour of a person costs the firm, not their salary divided by 2,080. Start with salary plus benefits and payroll taxes, add their share of overhead (tools, rent, management), and divide by billable hours, not paid hours. Someone who is 70% utilised has about 1,450 billable hours a year, which raises the cost rate by roughly 40% compared with dividing by all paid hours.
For contractors, the cost rate is what you pay them per hour plus any margin you need to cover account management. Keep cost rates on the rate card, never on the quote: the calculator leaves them out when it opens the quote generator.
When a rate card is the wrong model
A rate card prices effort. When the client values an outcome more than the hours (a migration finished by a date, a fixed deliverable, a retainer for availability), a fixed fee or retainer often earns more and is easier to sell. Build the rate card estimate anyway: it is the floor under any fixed price, and it shows how much an overrun will cost you before you commit to the number.
Frequently asked questions
What is a rate card?
A rate card lists the hourly or daily rate you charge for each role on a project, such as project manager, developer, or designer. Multiplying each role’s rate by the estimated hours gives the project price.
What gross margin should an agency target?
Many service firms aim for a 40-60% gross margin on delivery, meaning the cost of the people doing the work is 40-60% of the price. Below about 30%, overruns and non-billable time can erase the profit. Set your own target in the calculator.
How is gross margin calculated here?
Gross margin = (price - delivery cost) / price, where delivery cost is hours x each person’s fully loaded cost rate (salary, benefits, and overhead per hour, or a contractor’s rate).
Should I add contingency to a fixed-price quote?
Usually yes. A 10-20% contingency on fixed-price work covers estimation error and small scope changes. On time-and-materials work it is less important because extra hours are billed.
What is the difference between markup and margin?
Markup is profit as a percentage of cost; margin is profit as a percentage of price. A 100% markup on cost is a 50% margin. Pricing from margin makes it easier to see how much of each dollar you keep.
Keep going
Try a free tool for the same step, or read more on the blog. Stuck on something? Ask me.