Section 1
The calculator
Work through it in order. Every line is a number you already have or can estimate in ten minutes. The gap between line C and line D is the first shock for most owners. The cost-plus rate they have been charging is often below the rate their own capacity requires, which means they have been running a full calendar at a price that cannot actually fund the business. They feel busy and stay broke, and the calculator shows why in one subtraction.
Section 2
Why cost-plus is the wrong tool now
Cost-plus pricing answers a specific question: given what this job costs me to deliver, what markup makes it worth doing? That question is correct when you can add capacity, because then price is mostly about protecting margin on an expandable base. Sell more, add a crew, repeat. When you cannot add capacity, the question changes. It is no longer "what markup covers this job" but "what is the most valuable use of the fixed hours this job will consume." Cost-plus is blind to that, because it prices each job in isolation as if your hours were unlimited. It never asks what you gave up to say yes. In a capacity-constrained firm, every hour sold is an hour not sold to something else, and a pricing method that ignores that opportunity cost will systematically underprice your scarcest work. This is the core reframe: cost tells you the floor below which a job loses money. Scarcity tells you the level at which a job is worth the capacity it eats. In a normal market the floor governs. Under a capacity ceiling, scarcity governs, and a firm still pricing off the floor is leaving its largest margin uncollected.
Section 3
Working the two models behind the number
Comparative statics: move the price, watch the demand. The calculator's line F is a comparative-statics exercise in disguise. You change one variable, your rate, hold everything else roughly still, and watch where acceptance moves. If you raise the rate and your acceptance of inbound work barely falls, demand is telling you the price was too low and you should raise again. When you raise the rate and acceptance finally drops toward the volume you can actually serve, you have found the level where price is doing the allocation work that a full-calendar-at-any-cost approach was refusing to do. Comparative statics, the lever lens. Assumes you can move price alone and read demand's response. Fits because capacity-constrained pricing is fundamentally about finding the rate where demand meets what you can deliver. Breaks when demand is lumpy or seasonal and one quarter's response misleads you, so read the trend across several months, not one bad week. Counteracts the reflex to hold last year's rate out of loyalty or fear. May reinforce over-raising into a soft patch, so watch for a real, sustained drop in quality inbound, not a normal lull. Opportunity cost: price the hour, not the job. The second model is the one cost-plus cannot see. Every job you accept has a shadow price: the value of the best job you turned away to make room for it. Line G forces you to attach your scarcity premium specifically to the founder wrench-time, the hours only you can deliver, because those hours have the highest opportunity cost in the firm. When you personally do a routine job that a junior could do, you are spending your most expensive hour on your cheapest work. The calculator makes that visible by separating the rate for expert-bin hours from everything else. Opportunity cost, the allocation lens. Assumes your hours have a next-best use you can name. Fits because a fixed capacity means every yes is also a no. Breaks when you genuinely have no alternative work competing for the hour, in which case the opportunity cost is low and you can price nearer the floor. Counteracts the habit of pricing jobs as if they were free-standing. May reinforce turning down volume you actually need to keep the crew paid, so check that the higher-value work is real and bookable before you decline the lower.
Section 4
A worked example, start to finish
Numbers make the method concrete, so run one all the way through. Take a two-person electrical firm where the owner is the only person who can do the complex commercial work and a junior handles routine domestic calls. • Line A, the owner's true available skilled hours: 46 working weeks at 28 genuinely billable hours, after quoting, driving, and admin, gives 1,288 hours. • Line B, required revenue: 120,000 owner pay, plus 95,000 overhead, plus 45,000 target profit, totals 260,000. • Line C, the old cost-plus rate the firm has been charging: 95 per hour, set years ago from job cost plus a markup. • Line D, the capacity floor: 260,000 divided by 1,288 is 202 per hour. This is the rate below which the owner's hours cannot fund the business, and it is more than double the rate the firm has actually been charging. That gap between 95 and 202 is the whole problem in one line. The firm has been busy every week and quietly failing to clear its own required revenue, subsidizing every customer with the owner's underpriced hours. Line F then raises from 202 while inbound stays heavy, and acceptance only starts to ease near 235 per hour, which becomes line G, the rate the owner charges for the expert-bin work only they can do. The junior's routine hours are priced separately and lower, because those hours are not the constraint. The firm's revenue rises with no new hire, purely by pricing the scarce hours at what the market was already willing to pay. The lesson generalizes past this example. If your cost-plus rate is well under your capacity floor, you do not have a demand problem or a hiring problem this quarter. You have a pricing problem you can fix this week.
Section 5
Turning the number into a live pricing rule
The calculator gives you a rate. A rate you set once and forget drifts back to being cost-plus within a year. Turn it into a rule that re-prices itself: 1. Re-run line D quarterly. Your available hours and required revenue both move. The capacity floor is not a constant. 2. Watch acceptance as your live signal. If you are accepting nearly all inbound work, your price is below line F and you have room to raise. If acceptance has dropped to match your capacity, you are near the right level. If it drops well below your capacity, you have overshot and should ease back. 3. Charge the founder wrench-time premium explicitly. For the jobs only you can do, apply line G and hold it. These are the hours the whole firm is bottlenecked on, and discounting them is discounting your ceiling. 4. Do not use price to solve the wrong problem. Pricing sets the level. Deciding which specific jobs to accept or decline once you are still over capacity is a separate tool, the job-triage matrix in this cluster. Price first, triage second.
Section 6
The blind spot
This calculator prices your scarcity accurately, and that accuracy has a limit worth naming. It assumes your scarce skill stays scarce and stays required. It cannot see the day tooling, prefabrication, or a software-assisted process lets a lower-skilled person deliver what used to need your hands, at which point the premium you are charging on founder wrench-time becomes a premium the market will stop paying because the work no longer needs you specifically. The calculator tells you what your constrained hours are worth today. It does not tell you when those hours stop being the constraint. Price the scarcity while it is real, and keep one eye on whether the thing you are pricing is still the thing the job requires.
Section 7
The fitness test
Run line C and line D for your own firm right now. If your cost-plus rate is below your capacity floor, you have your answer before you finish reading: you have been pricing a capacity-constrained business with a tool built for one that can grow its crew, and the difference between those two numbers is margin you have been giving away on every job. Raise toward line F until your acceptance rate finally meets the work you can actually deliver. If nothing changes when you do, you were underpriced all along and the full calendar was the proof.