A baseline price is the lowest price you can charge for a project or order and still cover what your business costs to run, what the work costs to deliver, and the profit the business needs. Charge less, and the job comes up short, even when the client pays every invoice in full.
If you search for “cost baseline” online, you will find a project management definition about tracking a budget. That controls what a project spends. A baseline price is different. It tells you the least amount you can charge for it.
When profit comes in lower than expected, scope creep, demanding clients or a chaotic month usually get the blame. Sometimes they are the cause.
But a project can run exactly to plan and still come up short if its price was never built to cover what the business needs from it.
The shortfall starts at the quote.
Delivery only reveals it.
The Baseline 3
A baseline price is built from three things. I call them the Baseline 3:
- What it costs your business to exist, such as rent and software
- What it costs to deliver the work, including payroll, materials and logistics
- What your business needs to earn from that work, which is your profit
For a four-week project, it might look like this:
| The Baseline 3 | Amount |
|---|---|
| To existIts share of rent, software and insurance for four weeks | $20,000 |
| To deliverPayroll, materials and logistics for the job | $12,000 |
| To earnThe profit the business needs | $10,000 |
| Baseline price | $42,000 |
Quote below $42,000 and the job comes up short, however smoothly it runs.
The Next Step: The Protected Price
A baseline price covers the project in front of you: its share of what the business costs to run, what it costs to deliver, and the profit the business needs from it. That profit is what funds growth and pays the founder.
But every business also has costs that no single project creates. You need to market your services to win the next client. Equipment breaks down, software prices go up, and small costs come up that you can’t bill to anyone.
None of these belong to one client, yet your projects are the only thing bringing in the cash to pay for them. If your prices don’t provide for them, they come out of your profit, the money that was meant for growth and for you.
That is where a protected price comes in.
A protected price is your baseline price plus protection for marketing, a reserve and the unexpected. Quote the same project at $48,000 instead of $42,000, and the extra $6,000 covers those costs, so your $10,000 profit stays yours.
The baseline price protects the project.
The protected price protects the business.
Know Both Numbers Before You Quote
Before your next proposal goes out, make sure you know both numbers:
- Your baseline price, so you know the lowest price you can accept without coming up short.
- Your protected price, so the business can pay for its next client and the unexpected, and still keep its profit.
If a client pushes back, the gap between the two is your room to move, and your baseline price tells you where to stop.
Know your numbers before every quote
Profit Pilot works out your baseline and protected price automatically, so you win the work without giving away your profit.
See How Profit Pilot WorksFrequently Asked Questions
What is a baseline price?
A baseline price is the lowest price you can charge for a project or order and still cover what your business costs to run, what the work costs to deliver, and the profit the business needs. Charge less and the job comes up short, even when the client pays in full.
What is the difference between a baseline price and a cost baseline?
A cost baseline is a project-management term for the approved budget a project manager tracks spending against. A baseline price is the lowest you can charge for the work and still cover what your business costs to run, what the work costs to deliver and the profit the business needs.
What is baseline cost?
Baseline cost is a project or order’s direct costs plus its share of the business’s overheads. It covers the work but includes no profit. Add the profit the business needs and you have the baseline price.
Is the baseline price the price I quote?
No. The baseline price is the lowest the price can go when you price from your costs. The protected price adds protection for marketing, a reserve and the unexpected, and where the client gets more value from the work, the price can sit higher still.
Should marketing costs come out of your profit?
No. Marketing is part of what it costs to run the business, like a reserve and unexpected costs. Profit is what the business keeps to grow and to pay its founders. When prices don’t provide for marketing separately, it comes out of the profit instead.
Does a baseline price work for products as well as services?
Yes. A custom order, a batch of products and a consulting project all have to cover the same three things: what the business costs to exist, what the work costs to deliver and the profit the business needs.
This article is general information for business owners, not legal, tax or accounting advice. Rules vary by state and by business structure, so check with your CPA, tax advisor or attorney before acting on anything here.
About Creative Profit Solutions
Creative Profit Solutions works with owner-led businesses to close the gap between their pricing and their operational reality, so more of the profit in every quote ends up as cash in the bank.
Founded by Temi, whose background spans accounting, operations and white-label apparel manufacturing, it gives owners experiencing cash flow pressure, operational chaos and founder overwhelm the structure to plug hidden profit leaks and keep more of what they earn.
