A discount can make a proposal easier to accept while leaving much less money to cover the business. Before changing the price, calculate what one unit of work contributes and identify the assumptions behind that number.

Choose a unit that matches how you sell

For a service company, the unit might be a fixed-scope project, a monthly client retainer, an installation or a support package. Use a definition that can be repeated across comparable jobs. Comparing a ten-hour task with a six-month engagement as if they were the same unit will hide the reason margins differ.

Document what the price includes: deliverables, revisions, support time and third-party costs. Scope is part of the economics, not a detail to settle after the sale.

Separate contribution from profit

Contribution per unit = selling price − variable costs for that unit. Contribution margin is contribution divided by selling price. It is the amount available to cover fixed costs and, after those are covered, contribute to profit.

Do not classify every delivery expense as variable automatically. Salaried staff may be fixed within the period and capacity range you are analysing. For project profitability, you may also allocate staff time to jobs, but label that view separately and avoid counting the same expense twice.

Calculate the effect of a discount

In this illustrative example, a package sells for €2,000 and requires €1,200 in genuinely variable costs. Contribution is €800, or 40% of revenue. A 10% price discount reduces the price to €1,800. If variable costs stay unchanged, contribution falls to €600, or approximately 33.3%.

The price fell 10%, but contribution per package fell 25%. To generate the original €8,000 contribution from ten packages, you would now need about 13.33 packages, or fourteen whole packages. That comparison assumes unchanged costs, sufficient demand and enough delivery capacity.

Check the constraints before accepting more volume

• Will extra work require overtime, contractors or another employee?
• Are revisions, onboarding and support included in the cost estimate?
• Does the client pay a deposit, or must you fund delivery first?
• Does the discounted package displace work at the normal price?
• Are pass-through costs and sales taxes treated consistently?

A price can cover variable costs and still fail to sustain the business. Fixed overhead, capacity and the required return also matter. BDC's pricing guidance highlights the need to include overhead when evaluating profitability.

Build a repeatable pricing worksheet

For each service, record the unit definition, price, variable costs, contribution, delivery hours and payment terms. Compare the quote with actual delivery after completion. When an assumption proves wrong, update the next quote instead of quietly absorbing the difference.

Use Finance Therapy's unit economics tools to structure this view around your services. Book a call if you need help connecting pricing, capacity and management reporting.