How to price a proposal: methods, formulas, and examples

Proposal pricing, also known as price proposal or pricing proposal, is a document created when potential clients send an RFP (request for proposal) or an RFQ (request for quote), which lays out how much a project will cost and exactly what's included in that price.

Your potential clients are no different. To confirm if they're getting the best deal (or not), they'll ask multiple vendors to provide a quote for the same solution. This “quote” usually comes in the form of a pricing proposal.

A contractor may build this document with a certain pricing methodology in mind, such as an hourly rate, monthly rate, cost-based rate, or time-and-materials rate. A pricing proposal serves as the document that has the final price. It's not an estimate, and it generally can't be negotiated later on. It also includes an itemized summary of all deliverables.

Read on for the main pricing methods, a step-by-step formula you can use on your next proposal, two worked examples, and how PandaDoc CPQ takes the manual work out of pricing.

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How do you price a proposal?

1. Add bundled packages

You could pitch an individual service on your price proposal. Although since it's the perfect opportunity to upsell, why hold back? In your proposal, show your services in a bundle.

For example, if you're a writer, instead of just agreeing to write an ebook, you can bundle your service as an ebook + content upgrade + two blogs + keyword research.

This allows you to work on a bigger project, and it also allows your clients to get better results through a well-rounded strategy, the bundled services might cost them less than if purchased individually. A win-win.

2. Price based on the value you provide

The value-based pricing model is effective for two reasons: it scales (it's a long-term fit), and your price is tied to the results your product or service delivers.

Although finding the value of your product or service can be a difficult guess, you can reverse-calculate the price. Keeping up with the writer analogy: if the emails you write result in 2x revenue for your client, you can base your price on that outcome.

3. Provide pricing options

Any place you go, you're rarely stuck with just one option. Hotels don't offer rooms in only one size, a travel agency won't suggest just one type of trip, and even buying a plane ticket comes with different seating tiers.

Some customers are budget-conscious; others need to meet specific deliverables and will pay more to get there. Providing options in pricing (and deliverables) lets customers choose whichever fits them best, which increases the odds they say yes.

The trick isn't just showcasing pricing options. It's also onboarding clients faster with an efficient process once they've signed. Greater visibility into your pipeline, paired with a smooth onboarding flow, makes sure both sides have what they need at their fingertips.

4. Show the benefit you offer

Pricing proposals aren't only there to answer an RFP with a number. Use them to explain the value your product or service provides. Elaborate on your experience, your deliverables, the value the customer gets from those deliverables, and your USP.

Customers buy into the results they expect to receive, so helping them visualize the outcome before they see the price increases your odds of a yes.

How to calculate your proposal price

Most underpriced proposals fail for the same reason: the price was a gut-check number instead of the sum of real costs. Use this layered formula instead:

Your proposal price = Base cost + Overhead + Risk buffer + Profit margin

• Base cost: direct labor (hours × rate), materials, and subcontractor costs.

• Overhead: fixed business costs allocated to the project — office, software, insurance, admin time — typically expressed as a percentage of base cost.

• Risk buffer: contingency for scope uncertainty, typically 10–20% depending on project type and client clarity. Go higher for new clients or ambiguous scope, lower for repeat clients with clearly defined deliverables.

• Profit margin: what you want to make above your costs. This isn't the same as markup if you want a 20% margin, divide your total cost by 0.8. Multiplying by 1.2 gives you a 20% markup, which is a smaller margin than it looks like.

Worked example: A freelance web designer is quoting a five-page small-business website.

The designer prices the proposal at $4,960 not $3,000, and not a round “$5,000” pulled from thin air. Every dollar traces back to a cost or a decision, which is exactly what a client (or your own bookkeeping) should be able to see if they ask “why this price?”

Download the free PandaDoc pricing proposal template →

Pricing psychology: how to present your price to win

The number on the page matters less than how it's presented. A handful of well-documented psychological principles shape how buyers react to the same price:

• Anchoring: presenting a premium option first frames the mid-tier option as more reasonable by comparison. It's a core reason three-tier pricing works as well as it does.

• The three-option sweet spot: when buyers see three pricing tiers, they gravitate toward the middle option more often than either edge. Structure your packages with that tendency in mind, and price the middle tier as the one you actually want most clients to pick.

• Value framing before price: show the outcome or ROI before the number. A buyer who sees the value first evaluates the price against what they're getting, not in a vacuum.

• Price specificity: $4,750 reads as more carefully calculated than $5,000. Round numbers signal an estimate; specific numbers signal precision, even when the underlying math lands close to the same place.

• Payment terms as a pricing lever: breaking a large project into monthly payments can make it feel more accessible without lowering the total price.

These are widely used conventions in pricing and sales practice rather than settled experimental findings for every context. Treat them as starting points to test with your own clients, not universal rules.

Related reading: tiered pricing strategy.

Pricing proposal examples

Two worked examples of how these strategies and the formula above come together in a real proposal:

Example 1: Marketing agency, content strategy engagement

A marketing agency is pricing a proposal for a mid-sized B2B client that wants an ongoing content strategy.

• Base cost: 60 hours of strategist and writer time at a blended $90/hour = $5,400

• Overhead: 15% = $810

• Risk buffer: 10% (existing client, defined monthly scope) = $621

• Profit margin: 25% → subtotal ÷ 0.75 = $9,108/month

Instead of presenting one number, the agency bundles the engagement into three tiers: Standard (strategy + 4 blog posts/month), Premium (Standard + SEO optimization + 1 gated asset), and Enterprise (Premium + monthly reporting + a dedicated strategist). Premium is priced closest to the calculated $9,108 and positioned as the recommended tier: Standard and Enterprise anchor the range around it.

Example 2: SaaS company, RFP response

A software company is responding to an RFP for a mid-market client evaluating vendors.

• Per-seat pricing: $45/user/month × 50 seats = $2,250/month

• Implementation fee: one-time $6,000, covering data migration and onboarding

• Support tier: priced separately as an optional add-on — Standard support included, Priority support (faster SLA, dedicated contact) offered at $500/month

The proposal separates the recurring per-seat cost, the one-time implementation fee, and the optional support tier into clearly labeled line items, so the buyer's procurement team can evaluate each cost independently rather than trying to reverse-engineer a single bundled number.

Types of pricing methods

1. Cost based

The cost-based pricing method follows the calculation wherein the sellers calculate the unit price of a product, bearing in mind both direct costs and indirect costs such as production, labor, raw materials, marketing, storage, distribution, etc., and then add a markup accordingly.

This markup can be calculated using multiple pricing strategies such as cost plus (percentage-based pricing), target profit (profit-based pricing), break-even (using the price it took to create and distribute the product), and markup (keeping a particular price point in mind).

Most small businesses and freelancers use the cost-plus pricing strategy to decide the right price for the products/services they offer.

Learn more about cost-based pricing and how to calculate it with this guide: Definitive Guide to Cost-Based Pricing with Examples.

2. Demand based

The airline and transportation industries are the ring bearers of demand-based pricing. What they do is hike up prices during a time of demand.

For example, if June is a popular month to fly, tickets would generally be priced higher that time of the year.

In a similar context, theme parks like Disney World increase their prices during a time of high demand. You might also see air conditioners being more expensive during the summer season.

The demand-based pricing model follows the logic of hiking up prices when the demand is high to gain maximum profit.

3. Competition based

The competition-based pricing methodology considers competitor pricing before a business sets prices of its own.

For example, companies that operate in a network, the food delivery niche, or companies from the SaaS industry, most commonly use this pricing model to not alienate their customers solely based on pricing.

Although the competition-based pricing model has multiple benefits, it has its own set of disadvantages too — such as overtly copying your competitors may cause you to lose your unique edge.

The going rate pricing method also follows the same direction, but with the going rate pricing strategy, the prices that are set by industry leaders have to be followed.

Explore more about competition-based pricing and its pros and cons here.

4. Value-based

The value-based pricing model is perhaps the most effective pricing strategy, mainly because it considers the unique value your product/service can provide, and bases prices accordingly.

For example, if two companies operate in the same niche and are competitors, Company A may have three features.

In contrast, Company B may provide six features, so pricing both services similarly doesn’t make sense — in such cases, it makes more sense to price the services of Company B at a higher price point.

Here’s a detailed guide that explains why value-based pricing might be the best pricing strategy for your business.

5. Target return

This pricing model calculates pricing based on the profits a company expects from the products/services they sell.

For example, if a company wishes for a 20% return on investment, then that’s how they’ll make the calculations to come to the right price.

You’ll mainly see the eCommerce industry using this pricing strategy. So here’s how to calculate prices based on target return: TRP = UC + (DR*C)/US

TRP stands for target return pricing, UC for unit cost, DR for desired return, C for the investment, and the US stands for unit sales.

Equity pricing, performance-based pricing, etc., are some of the other types of pricing models.

Avoiding scope creep: how to price defensively

The single most common way freelancers and agencies lose money on a priced project is through an undefined scope that quietly expands after the proposal is signed.

• Define scope of work clearly in the proposal, and just as importantly, specify what's excluded. Ambiguity about scope is the leading cause of losing money on priced work.

• Build a risk buffer into the price for any project with real scope uncertainty: a new client, a first project together, or complex technical requirements. The 10–20% buffer in the formula above exists for exactly this.

• Spell out the change order process in the proposal itself: how additional scope gets priced, who approves it, and how it gets added to the agreement once work is already underway. A defined process turns “can you also just—” into a paid line item instead of free work.

Related reading: how to write a statement of work and change order template.

How to present a pricing proposal

1. Begin with the budget

Start by identifying direct costs (labor, materials) and indirect costs (office rent, insurance). Add your profit margin to land on the total project cost. The same layered approach as the formula above.

2. Present a cover letter

A pricing proposal is often your first real communication with a potential client. Lead with a cover letter that shows your experience and the benefit of partnering with you, in a warm, confident tone.

3. Add a completion date

Include a completion date or a set of milestone dates. This doesn't need to be the absolute final deadline. An estimate of key project milestones works too, and gives the client a sense of pacing.

4. Include billing options

Cover your billing options, payment due dates, and any terms and conditions clearly. Both parties should agree to all terms before the agreement is signed.

5. Use templates

If you're short on time, a template is an asset, not a shortcut to feel guilty about. Just make sure you personalize it enough that it doesn't read as generic. Most of your competitors are working from a template too; the difference is in how well it's adapted to this specific client.

Download the free PandaDoc pricing proposal template →

See also: How to follow up on a proposal.

How much should I charge for a proposal?

1. Calculate all potential costs and profits

Many businesses enter a project on a gut-feel estimate, only for it to bite them later because they didn't account for every direct and indirect cost. Add up everything first, decide the profit you want (as a percentage or a flat number), and only then present the price.

2. Decide on hourly, monthly, or project-based pricing

Consultancy work often benefits from hourly pricing; writing and design work often benefits from project-based pricing. Each has trade-offs such as hourly pricing can punish efficiency, while project-based pricing risks scope creep if deliverables aren't locked down. Know your client's working style and pick the structure that protects your margin on this specific type of work.

3. Decide how you want to present yourself

Clients generally fall into two camps: those who prioritize the lowest price above all, and those willing to pay more for guaranteed quality. Vendors split the same way. Some will compromise on price (and quality) to win the deal; others won't compromise on either. Decide which vendor you want to be before you price the proposal, not while you're negotiating it.

How PandaDoc CPQ automates proposal pricing

Everything above is manual — and manual pricing is where mistakes creep in: a rep applies the wrong rate, forgets to add a fee, or approves a discount that erodes the margin the deal actually needed. PandaDoc's CPQ (configure, price, quote) tools handle the calculation so the math is correct before a proposal ever reaches a client.

• Product catalog: every product, service, and price lives in one central catalog that reps pull from. No manual pricing entry, no rogue rates.

• Volume-based pricing rules: configure pricing that adjusts automatically based on quantity, so volume discounts apply without a rep doing the math by hand.

• Pricing formulas: custom formulas calculate variable charges automatically. A rep enters the inputs, and CPQ returns the quoted price.

• Discount approval workflows: if a rep offers a discount above a set threshold, the proposal routes for approval before it reaches the client. No unapproved discounts, no unexpected margin erosion.

• Multiple pricing models in one quote: a single proposal can combine a flat fee, a recurring monthly charge, and a usage-based line item — CPQ handles the structure so it reads cleanly to the buyer.

• AI Assistant for pricing sections: PandaDoc's AI Assistant can help draft the narrative around your pricing — explaining the value, framing the cost, and writing the “why this price” section — while CPQ ensures the number itself is correct.

This is also where the pricing methods above stop being theoretical: CPQ is what lets a value-based or tiered pricing structure actually scale across dozens of proposals without every rep recalculating from scratch. See also: quote-to-cash vs. CPQ.

See how PandaDoc CPQ automates your proposal pricing — try it free →

Begin creating pricing and business proposals

Now that you have the need-to-knows of pricing proposals, it's time to build one. You can put one together in a Word doc, or use proposal software built specifically for this.

PandaDoc lets you create proposals, edit them, track them, and get them signed with minimal effort. Start from a proposal template in our resource hub (or upload your own), fill in the details, and send it to the client. From there, you'll see when the proposal is opened, which sections got the most attention, and whether it's been signed — all through document tracking built into every send.

PandaDoc starts at $19/month (billed annually). Check the current pricing page for the latest plans and features, since these change from time to time. You can also request a demo or use PandaDoc free for 14 days, no credit card required.

Start your free PandaDoc trial and create your next pricing proposal →