8-Steps To Calculate Charge Out Rates For Tradies

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Ever looked to your mates, former bosses, or even Scott from your local Facebook group to see what everyone else is charging?

*hold that thought*

While it’s comforting to know where you stand against others.

Copying other business’s prices is the fastest route to the financial poorhouse.

Let me explain…

The going rate is an illusion.

Nothing more than the bare minimum contractors in your area will settle for.

i.e. a baseline.

The starting point that's designed to keep everyone on a level playing field.

Tricking contractors into thinking they’ll safely win work and still make a profit.

Because, you know, everyone ‘only cares about price’, right?

But let me be brutally honest with you.

It’s the war cry of average.

Average customers.

Average service.

Average business.

Average prices.

Average profit.

So instead, take the time to understand your own numbers.

Consider how much money you want to earn…

Your own debt situation…

The overheads in your business…

What your service looks like…

Because I’d bet this looks different to your competitors.

So why would you charge the same?

Here’s the 8-steps you need to calculate YOUR OWN minimum rates instead…

Step 1: Annual Labour Cost

What is the annual cost of all your field workers

(inc. salaries, super, work cover, etc.)?

For example:

John (‘On the Tools’ Director) = $110,000

Mitch (Tradesman) = $85,000

Jess (Apprentice)= $40,000

Step 2: Labour Availability

How many hours across the year are the field workers available to work?

John = 8 hour standard work day * ((52 weeks * 5 day weeks) – (30 Annual leave days – 5 sick days) = 1880 hours

Mitch = 8 hour standard work day * ((52 weeks * 5 day weeks) – (30 Annual leave days – 5 sick days) = 1880 hours

Jess = 8 hour standard work day * ((52 weeks * 5 day weeks) – (30 Annual leave days – 5 sick days – 48 TAFE Days) = 1416 hours

Step 3: Labour Cost Per Hour

What is the cost of each field worker to the business every available work hour?

John = $110,000 / 1,800 hours = $61.11/hour

Mitch = $85,000 / 1,800 hours = $47.22/hour

Jess = $40,000 / 1,416 hours = $28.25/hour

Step 4: Minimum Gross Profit

This isn't about surviving; it's about thriving.

Close your eyes and envision the empire you're building.

Where do you see yourself in a year? Five years? Ten years?

Your pricing strategy must align with this vision.

So get clear on the minimum gross profit needed to cover overheads AND achieve your net profit goal.

Net Profit Goal = $50,000

Projected Overhead Cost = $100,000

MINIMUM Gross Profit Target = $50,000 + $100,000 = $150,000

Step 5: Labour Gross Profit Target

How much gross profit does your labour need to make to achieve the minimum gross profit target?

Annual Projected Material Cost = $100,000

Average Material Markup = 30%

Projected Material Gross Profit = $100,000 * 30% = $30,000

Required Labour Gross Profit = $150,000 – $30,000 = $120,000

Step 6: Minimum Labour Margin

What gross margin is needed to achieve your required labour gross profit?

Total Available Field Worker Hours = 1800 + 1800 + 1416 = 5016 hours

Combined Total of Field Worker Costs = $235,000

Avg. Cost Of Field Worker Per Hour = $235,000 / 5016 = $46.85/hour

Avg. Labour Cost To Cover all Field Worker & Overhead cost and achieve Net Profit Goal = ($120,000 + $235,000) / 5016 = $70.78/hour

Minimum Labour Gross Profit Margin = (1 – ($46.85 / $70.78)) = 0.34 (or 34%)

Step 7: Billable Time

How billable are each of your field workers on average?

AKA the time field workers can be charged to a client, making your business money.

John = 70%

Mitch = 70%

Jess = 70%

(the industry average is roughly 60%)

Step 8: Minimum Labour Rates

What’s the minimum labour rate for each field worker to cover their cost, overheads, and net profit goal?

John Minimum Labour Rate = ($61.11 / (1 – 34%)) / 70% = $132.28/hour

Mitch Minimum Labour Rate = ($47.22 / (1 – 34%)) / 70% = $102.21/hour

Jess Minimum Labour Rate = ($28.25 / (1 – 34%)) / 70% = $61.15/hour

Remember, the only rate that matters is the one that:

#1 achieves your own income goals.

#2 covers your own overhead costs.

#3 allows you to deliver a jaw-dropping experience.

Three factors unique to YOU!

So don't let others dictate your success.

Master your math, fine-tune your pricing strategy, and watch your business soar.

This is where true success resides.

Are you ready to claim it?

Hope this helps.

P.S. If you’re sitting idle, spinning your wheels, and not getting the traction you want in your business then something’s got to change for something to change.

Many contractors try to ‘hard work’ themselves to success, thinking they have to re-invent the wheel and figure out everything on their own.

But this couldn’t be further from the truth.

The fastest way to get what you want is to invest in learning the skills you currently don’t have.

Let us give you that opportunity.

Sign up for a month, experience the TBA difference 1-on-1, and only then decide on whether we’re the real deal and if you’d like to work with us (for the same reason you don’t buy a house without first looking at the inside of it).

Whether it’s 29 minutes or 29 days from now, if you want your investment back all you have to do is let us know.

Best case scenario, we help you smash your goals in record time.

Worst case scenario, you ‘try us on’, keep our advice and tools, and part ways in 30 days.

Either way, you don’t let hesitation rob you and your family of the success you deserve.

Click here to get started.

You’re only one decision away from completely changing your life.


Bayley Peachey | Client Advisor

About the author

As an accountant with a background in construction Bayley has advised trade businesses anywhere from start-up to $20M, helping to simplify financial management, increase business KPIs and generate millions of dollars’ worth of additional profit.

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