Pricing a proposal: cost price, markups and hourly rate

What is the price build-up of a proposal?

The price build-up is the calculation behind your proposal price: first the cost price, then the markups. The cost price is what the assignment costs you; the markups cover your overhead, your risk and your profit. KVK, the Dutch Chamber of Commerce, and Ondernemersplein, the Dutch government’s portal for entrepreneurs, describe the same order: add up all costs and put your profit margin on top. If you have to charge VAT, that comes on top again.

If you know your cost price, you know how much room there is when the client starts negotiating, and you can back up a sharp price when someone asks for it.

How do you calculate the cost price of a service?

You calculate the cost price by adding up every cost the assignment causes or has to carry. Ondernemersplein distinguishes direct costs, which you can link to one product or service, from indirect costs, which you cannot. For services these usually fall into three groups.

• DirectDirect labour costsThe hours of the people doing the work, at what an hour really costs you: gross pay, holiday pay, employer contributions such as pension and social security premiums, and allowances from the collective labour agreement. In the Netherlands holiday pay is, as a rule, at least 8% of gross annual pay.
• DirectEquipment and resourcesWhat you deploy for this assignment: vehicles, tools, machines, licences, workwear. What you already own, you charge through depreciation and use, not as zero.
• IndirectOverheadCosts the whole company carries: office, management, administration, sales, insurance, IT. The hours you spend on proposals belong here too. You spread them over your assignments with a markup.

The biggest mistake is usually in direct labour. Gross pay is not what an hour costs. Holiday pay and employer contributions come on top, and you have to divide the whole by the hours someone actually works on assignments, not by all paid hours.

How do you calculate an hourly rate?

You calculate an hourly rate by dividing all annual costs, plus your markups, by the number of hours you can bill. That number is lower than you think. For a self-employed person with a five-day week and thirty days off, KVK counts 230 working days, or 1,840 hours a year, and says a starting entrepreneur should be satisfied billing 50 to 60% of them. The rest goes on winning work, administration and proposals.

For a company with staff it works the same way. Subtract leave, public holidays, sickness, training and internal time from the contract hours. What remains are the productive hours. Divide the labour costs by those, and you have your cost price per hour, still without markups.

An hour does not cost the gross wage, but everything you pay divided by the hours you can bill.

Which markups do you add to the cost price?

On top of direct costs you add three markups: overhead, risk and profit. There is no standard percentage. You work out the overhead markup from your own figures: last year’s overhead divided by last year’s direct costs. The risk markup depends on the assignment: how certain are the volume, the schedule and the delivery? Profit is your choice.

A fictional example. A service provider prices an assignment of 2,000 hours a year.

Two things stand out. First, it matters what you apply a markup to. 12% of direct costs is not the same as 12% of labour costs alone. Decide how you calculate and do it the same way in every proposal.

Second, a markup is not a margin. A 5% profit markup on € 103,320 is € 5,166, but that is 4.8% of the selling price. When you talk about margin with a client or internally, say which of the two you mean.

Fixed price, hourly rate or time and materials: which do you choose?

The pricing form decides who carries the risk. For service providers, Ondernemersplein names three forms: a fixed price, an estimated price, or a price based on the hours worked and materials used. Each has its own rules if you later want to raise the price.

With a multi-year assignment there is also the question of whether your price grows along. According to Ondernemersplein, you may only change the price in an existing agreement if your general terms and conditions allow it, including how and when. So arrange it in the proposal, not afterwards.

Options and volume tiers

KVK advises splitting the assignment into parts, each with its own price, so the client can also buy just a part. The client gets a choice, and a basic version with separate options makes clear what is not in the basic version.

A volume tier gives a lower unit price at a higher volume, for example a lower hourly rate above a set number of hours a year. Check every tier against your own cost price. A tier that only works if the highest volume is reached is a risk you carry yourself.

In a European public tender there is less room. You fill in the contracting authority’s price form exactly as it is set up. Your own options or reservations do not belong there, unless the documents ask for them. If you are unsure how to fill something in, ask in the clarification round (in Dutch, the nota van inlichtingen).

How do you present the price in a proposal?

Present the price only after the client has read what they get for it. KVK puts it this way: explain clearly what you deliver for the price, so the client can make a sound decision. How the price fits into the rest of your proposal, you can read in how to write a business proposal.

• Value firstFirst the result, then the amountLink the price to what the client achieves with it: fewer outages, one point of contact, a deadline they meet. An amount without context is only compared with other amounts.
• TransparentBreak down where it helpsSplit into components, one-off and recurring costs, and what is not included, such as travel costs. That helps the client choose and prevents arguments later.
• Not too muchNo markups on the table unless askedYour overhead markup, your risk and your profit are your own business. Show them, and the conversation turns to your percentages instead of the value.
• DiscountRather something extra than a lower priceKVK advises not to lower your price too quickly: you keep less, and the client may start to doubt your quality. A longer warranty or an extra service keeps your price credible.

If the client does ask for a breakdown, or a contracting authority in a public tender asks you to explain a price that looks abnormally low (Article 2.116 of the Dutch Public Procurement Act 2012), you want to be able to give it straight away. How that works, read in abnormally low tenders. How to keep room for a second round, read in price negotiation and best and final offer.

Show what the client gets before you say what it costs. An amount without value is only compared with a lower amount.

How do you account for indexation and wage increases?

You account for them by pricing with the labour costs that will apply during the assignment, not today’s. According to CBS, Statistics Netherlands, collectively agreed wages in the third quarter of 2026 were 4.0% higher than a year earlier (provisional figure). Contractual labour costs, which are collectively agreed wages plus employer contributions, rose 4.4% in the first quarter of 2026. For labour-intensive services such an increase moves your cost price per hour almost one to one.

1. 1Know which collective agreement appliesIn the Netherlands you follow a collective labour agreement (cao) if you concluded it yourself, if you are a member of the employers’ organisation that concluded it, or if it has been declared generally binding for your sector. Check in that agreement when the next pay rise takes effect.
2. 2Price at the level of deliveryIf the assignment starts after a known pay rise, include it in your cost price per hour. A proposal validity period that runs past such a date is a risk. See is a quote binding.
3. 3Agree how the price growsFor a multi-year assignment, set out which index is used and when your price rises. How to calculate the gap between index and costs, read in price indexation. Which CBS series fits your costs, read in CBS indices.

How do you show VAT in a proposal?

State for every amount whether it includes or excludes VAT (in Dutch, btw), and which rate applies. According to the Dutch Tax Administration, the standard rate is 21%. A number of services fall under 9%, some cross-border services under 0%, and in some sectors activities are exempt. Check with the Tax Administration which rate applies to your service.

With business clients a price excluding VAT is customary, with the VAT amount and the total below it, as in the example above.