How to price a project so it still pays after delivery

A quote can look healthy on paper and still deliver much less once the hours are in. The gap rarely comes from one big mistake. It comes from four small ones: rates that don't carry their full cost, scope lines that are too loose, no room for the unknown, and direct costs added after the price is set.

This guide walks through each part of a quote, then shows a fictional project from quote to final hours, so you can see where quoted margin and delivered contribution part ways.

Start from a loaded cost rate

Every hour you quote needs a cost behind it. The number to use is a loaded cost rate: what one delivery hour really costs the business.

Work it out per person or per role:

1. Full annual employment cost. Pay, plus employer payroll taxes, benefits and retirement contributions. Use your own payroll figures.
2. Paid working hours. 52 weeks at 40 hours is 2,080. Take off public holidays and paid leave.
3. Delivery share. The share of those hours spent on client work. The rest goes on internal meetings, sales, admin and training.
4. Divide. Annual cost divided by delivery hours.

For the full method, including owners and freelancers, see how to set an internal hourly cost rate.

Fictional example. A designer earns US$72,000. Employer costs add US$14,400, for a total of US$86,400. After 200 hours of holidays and leave, they have 1,880 paid hours. About 70% of those go on client work, which is 1,316 delivery hours. The loaded cost rate is US$86,400 ÷ 1,316, or about US$66 an hour.

Dividing pay alone by 2,080 would give about US$35. Quoting from that figure would undercount this person's cost by almost half.

This cost rate stops before overhead. Rent, software, insurance and the owner's admin time are covered by the margin you add on top, which is the next step.

Set a margin target you can defend

Contribution margin is fee minus delivery cost, divided by fee. To price for a target margin, divide your delivery cost by one minus the target:

Price = delivery cost / (1 - target contribution margin)

Pick the target from your own overhead. If overhead runs at about 30% of fees and you want 15% left after it, you need around 45% contribution margin on each project. That is arithmetic from your own books, not an industry benchmark, so check it against last year's figures.

Watch the difference between markup and margin. A 50% markup on cost is a 33% margin, not 50%. Quotes built on markup often land well below the margin the owner had in mind. Markup vs margin has a conversion table and shows what a discount does to margin.

Write scope lines that can be checked

A scope line is a promise you can measure later. Each one should name:

• The deliverable, in plain words ("homepage and four inner page designs")
• The role doing it and the hours estimated
• The number of revision rounds included
• What is assumed ("client supplies final copy by week 3")
• What is excluded ("photography, hosting, content migration")

Loose lines such as "website design" can't be checked against actual hours, and they give no clear point at which extra work becomes a change request. Tight lines let you say, calmly, "the third round of design changes is outside the quote, here is the cost".

Keep contingency on its own line

Contingency covers the unknown: a slower approval, a tricky integration, a stakeholder who joins late. Show it as a separate line, not padded into each estimate. That way you can see after the project whether it was used, and how much.

Size it from your own history. Compare past estimates with actual hours for similar work. If you have no history yet, choose a figure, write it down, and check it after the next few projects. Work you have done many times needs less than work you have never done.

List direct costs before you set the price

Direct costs are what you pay out for this project alone: freelancers, stock images and fonts, printing, travel, software licenses bought for the job, and any media spend you pass through.

For each one, decide whether you pass it through at cost or add a markup, and say so in the quote. If a freelancer invoices in another currency, note the rate you used and the date. A cost added after the price is set comes straight out of contribution.

A quote sheet structure that holds up

Whatever tool you use, a quote sheet that you can check later has these parts, in this order:

1. Header. Client, project, date, version, currency and any exchange rate used.
2. Scope lines. Deliverable, role, hours, cost rate and cost for each line.
3. Contingency. Hours and cost, as its own line.
4. Direct costs. Each cost, with pass-through or markup noted.
5. Total delivery cost. Labor, contingency and direct costs.
6. Target margin and price. The price formula, then the rounded price.
7. Quoted margin. Recalculated from the rounded price.
8. Terms. Payment schedule, revision rounds, assumptions, exclusions and how long the quote is valid.

Keep the sheet after the project is signed. It is the baseline you compare actual hours against.

A worked example: quote vs delivery

Fictional example. A studio quotes a website project. Cost rates are US$80 an hour for the strategist, US$66 for the designer and US$75 for the developer. Contingency is 10% of labor, direct costs are a freelance copywriter (US$1,200) and stock images (US$300), and the target contribution margin is 45%.

Total delivery cost comes to US$13,919. At 45%, the price is US$13,919 ÷ 0.55, or US$25,307, which the studio rounds up to US$25,500. Here is the quote next to what happened:

Line	Quoted hours	Quoted cost	Actual hours	Actual cost
Discovery (strategist)	12	US$960	12	US$960
Design, 2 revision rounds (designer)	60	US$3,960	78	US$5,148
Build (developer)	70	US$5,250	80	US$6,000
Project management (strategist)	14	US$1,120	18	US$1,440
Contingency, 10% of labor	15.6	US$1,129	—	—
Direct costs	—	US$1,500	—	US$1,900
Total delivery cost	171.6	US$13,919	188	US$15,448
Contribution on US$25,500		US$11,581 (45.4%)		US$10,052 (39.4%)

The figures are illustrative and are not a customer result.

Quoted margin and delivered contribution are different numbers

Quoted margin is a plan: what the project leaves if the hours and costs match the estimate. Delivered contribution is what it actually left after the last hour and invoice.

In the example, the gap is six points, or US$1,529. It came from four places:

• Design, +18 hours. The client asked for a third revision round. The quote included two, so this should have been a change request.
• Build, +10 hours. An integration took longer than estimated. This is the kind of overrun contingency is for.
• Project management, +4 hours. Extra calls followed the added design round.
• Copywriting, +US$400. The freelancer billed for a second pass on the new pages.

Actual labor ran 32 hours over the scope lines, about twice the 15.6 hours of contingency. Contingency absorbed the build overrun. The design round, which was outside scope, is what pushed the project below its target.

Two changes would have kept most of the margin. First, billing the third revision round as a change request. Second, recording actual hours against each scope line as the project ran, so the design overrun showed up in week 3 instead of at the end.

Close the loop after every project

Put the final hours next to the quote sheet and note three things: which lines ran over, whether contingency was enough, and whether any work should have been a change request. After a few projects, those notes become your contingency percentage and your standard revision limits.

For the month-by-month view across all clients, the Client Profitability Tracker shows delivered contribution before overhead by client, project and month. The method behind it is in client profitability: contribution before overhead. Retainers need a different check during the month; see how to tell when a retainer is underwater.

A calculator for this

The Project Quote Calculator is in progress. It will build a quote from loaded rates, scope lines, contingency and direct costs, and show quoted margin before you send it. There is no release date yet; its page describes what it will do. Once the free lite edition of the tracker is released, signing up for it also gets you one email when the calculator launches.