Thanks for the clarification. Makes sense. I never really looked at it that way, as I see cost of living as subjective. I see it more about what do I need to live the life I would like. I could probably live in a smaller place, not eat out or buy nice things and be comfy on half as much, but I know how I'd like to live. Profit I suppose is savings then left over from living and enjoying life?
I can see the advantages of both ways to do it. My approach is basically a hybrid approach. The way I do it, I break down each step by hours so that they can see where the time/money is going but I bill on a flat per project rate. That way, it's harder for a client to look at a number and try to negotiate a bottom line number that looks like I made it up, and I can point to the hours and tell them this is how long it takes. They usually appreciate the more detailed breakdown (I get comments on the format of my proposals all the time), and it seems more professional than just a random number.
I also feel that sharing the rate helps communicate my level of experience and skill. They can see right at the start that I'm a professional and command professional rates, and know that they are paying for what I can deliver in both time and money, whereas they could probably find a student to do it for $50/hr they would get what they pay for.
Of course, my hours are estimates, and for fixed jobs I don't actually count/present hours, but know internally if I'm on budget or not and then adjust for future projects accordingly.