How to work out your true hourly rate as a tradesperson

Ask most tradespeople how they set their hourly rate and the honest answer is: they had a look at what everyone else was charging and landed somewhere near it. It feels sensible. It is also how you end up busy all year and still wondering where the money went.

Your rate should come from your numbers, not the going rate. Here is how to work it out.

What is a true hourly rate?

Your true hourly rate is the amount your business needs to earn for every billable hour to cover three things: the wage you want to pay yourself, the cost of running the business, and a bit of profit on top. It is almost always higher than the wage-per-hour you carry around in your head.

Why the rate in your head is too low

The catch is billable hours. You do not get paid for every hour you work. A normal week is full of unpaid but essential jobs:

• Quoting and site visits
• Driving between jobs and to suppliers
• Buying and collecting materials
• Invoicing, chasing payments and admin
• Marketing, calls and the odd cancelled job

Once you take all that out, only around 60 to 70% of your working hours are actually billable. Spread your wage and costs across those hours, not all of them, and the real rate jumps.

How to calculate your true hourly rate

Five steps:

1. Work out your billable hours a year. Working weeks × days a week × hours a day × your billable percentage.
2. Set your target wage. What you want to take home for doing the work, before tax.
3. Add your overheads. Everything it costs to run the business for a year.
4. Add your profit. A percentage on top, kept by the business.
5. Divide. Total money needed ÷ billable hours = your true hourly rate.

A worked example

Say you want a £40,000 wage, your overheads are £12,000, and you want 15% profit. You work 46 weeks, 5 days, 8 hours a day, and about 65% of that is billable:

Fifty pounds an hour, roughly £400 a day, just to hit your own targets. If you were quoting £35 because that is what the next person charges, you can see the problem.

What to include in overheads

Overheads are the costs of being in business at all, whether or not you have a job on. Include the van and fuel, tools and replacements, insurance, phone and software, your accountant, workwear, training and marketing. Do not include materials for specific jobs, those get priced into each quote separately.

How to actually use your rate

• Treat it as your floor. It is the least you can charge and still hit your wage and profit.
• Quote the job, not the hour. Use the rate behind the scenes, then give customers a fixed price.
• Review it every year. When costs or the wage you want change, your rate should move too.

Frequently asked questions

The takeaway

Charging what everyone else charges is how a whole trade stays underpaid. Your rate is a number you can work out in a minute from figures only you know. Do the sum, set your floor, and price with a bit of backbone.