Back to Blog

How much do you ACTUALLY need to charge out per hour?

Mar 28, 2022

Knowing what to charge your staff out at is a key area that impacts directly on your business' profitability. 

Using the 'standard' or 'average' charge out rates for your industry can send you broke

Your business is different to everyone elses, as are your costs. 

  • You may be in a highly seasonal industry where you need to charge higher amounts to offset your low season
  • You may use better quality materials to reduce callbacks
  • You may pay your staff higher to ensure a better quality finish on the job
  • You may have a warehouse to finance to hold more stock to complete jobs quicker
  • You may pay office staff to give your customers better service 

So using the average or your competitors pricing may not be enough to cover the additional costs you incur to give a the customer a better overall experience.  

You need to OWN that better experience and charge for it accordingly. 

If some customers are unhappy with the increased price for the better quality work, then they're not your ideal customers. 

 

Firstly we need to discuss dividing into an hourly rate

If you have an annual amount you can divide that by 52 weeks in the year and then divide by 38 hours in the week as a standard.   I use 50 weeks as we are closed over Christmas/New Year and wouldn't be charging out during that time. 

If you have a quarter amount divide by 12 then 38 and a month times by 12 then divide by 52 then 38. 

 

Here are some of the costs you need to consider when calculating your charge out price (I use a 38hr week when dividing down into an hourly rate)

  • Each employee's hourly rate including tax
  • Each sub contractor's hourly rate excluding GST
  • Each employee's annual leave for the year divided down into an hourly rate
  • Each employee's sick leave for the year divided down into an hourly rate
  • Each employee's super for the year (average) divided down into an hourly rate
  • Each employee's allowances for the year divided down into an hourly rate

 

 Once you have the total cost per employee, you then need to add the business costs to that

DO NOT INCLUDE COST OF SALES in this pricing.  That is charged separately for each job. 

EXPENSES

Find out your EXPENSES for the past year (or quarter or month, depending on how long you have been in business) and deduct any tradespeople wages or super from the amount, but KEEP any office staff that don't get charge out for their time.  I also put the owner/estimator in this section as well if they are paid a wage, as a lot of their work time is not charged out and if they go and do a job it's 'bonus profit'. 

This information is easily found on your profit & loss report.   Then divide it down into an hourly rate.

 

LOAN PRINCIPALS

Calculate the PRINCIPAL of any loans you are paying off per year.  This includes Car Loans.  The interest is included in the profit & loss statement but the principal is not.  You need to allow for paying that part off as well. Then divide it down into an hourly rate

DRAWINGS

Find the DRAWINGS the owner takes for the business for the year and divide that down into an hourly rate.  

 

Once you have all of these 'expense' hourly rates you can add them together. 

 

CHARGEABLE HOURS PER WEEK

Lastly, take into account the onsite time vs the non chargeable hours.  Ours sits anywhere between 75 and 95% per week, so I times the total business costs hourly rate by 1.25 to allow for downtime that isn't charged out. 

FINAL RATE CALCULATION 

Add the business costs hourly rate to each trade employee's hourly rate and you have a minimum charge out rate to break even.  

The goal is to then EXCEED this amount wherever you can to make your PROFIT. 

 There are definitely other costs to be considered depending on your business but these are the main ones to consider. 

 

 

Good luck in finding your minimum costing and creating a business that serves YOU.  

 

Cheers!

Stay in the Loop

Keep up with the latest Blog Posts, News & Courses! 

We hate SPAM. We will never sell your information, for any reason.