Estimate labor from scope
Break the work into deliverables and estimate hours for each phase. Apply an internal target rate that reflects compensation, overhead and realistic billable capacity.
Add direct expenses and contingency
List travel, software, subcontractors and other direct expenses separately. Add contingency for identifiable uncertainty rather than hiding it inside an unexplained hourly rate.
Apply margin correctly
Margin is profit divided by revenue; markup is profit divided by cost. To achieve a target margin, divide total cost by one minus the margin rate.
- Labor value
- Direct expenses
- Contingency
- Target margin
- Final proposal price
Review risk and payment terms
Pricing should reflect change control, payment timing, client dependencies and revision limits. A calculator supports arithmetic; the contract must define the commercial rules.