Working out your hourly charge-out rate is one of the first things you think about when starting your own trade business. How can you make sure you get it right? The trick is coming up with a rate that matches the market, will cover you and your team's costs, and above all, makes sure you're making some money!
Click the button below to access our free Charge-Out Rate Calculator:
You don’t need to be a mathematical genius to calculate your charge-out rate. Gather your working hours, time off, staff wages and business expenses. If you don't have actual records yet, realistic estimates should give you a starting point. However, the more accurate your numbers, the more accurate your charge-out rate will be.
The formula to calculate your rate is Charge-out rate = (Annual business costs + Target annual income + Tax allowance) ÷ (1 − Profit margin) ÷ Annual billable hours. Or, just add the info into our free charge-out rate calculator.
Before getting stuck in, decide on the following points:
Start with what you’d like to pay yourself each year. Keep staff wages, business costs and profit separate — we’ll cover those later.
If you’re aiming for $80,000, adding 20% ($16,000) to cover taxes brings your target to £96,000. This’s a starting estimate; what you really keep after tax depends on a whole lot of factors.
When was the last time you worked a standard 40-hour week on the tools?
Supply runs, customer calls and paperwork all take time, and you may not be able to bill for every hour. Before working out your chargeable hours, allow for holidays and sick days, along with:
Track your non-chargeable time for a week, including supply runs, quotes and paperwork. You might be surprised how it adds up. Your hourly rate needs to cover that work too, even when you can’t bill for it separately.
To work out the hourly amount needed for your pay, divide your annual income target, including the estimated tax allowance, by your annual chargeable hours:
For example, $96,000 ÷ 1,350 = $71.11 per hour
In this case, each chargeable hour needs to contribute $71.11 towards your pay and tax allowance. Your rate also needs to cover the costs of running your business, which we’ll add next.
For this example, we’ll use $50,000 in annual business costs. These could include:
Count each cost once, and exclude the income-tax allowance already included in step 1.
Your £50,000 in annual business costs divided by 1,350 billable hours gives a business-cost break-even rate of £37.04 per hour.
Add this to the income and tax allowance calculated in step 3:
($50,000 + $96,000) ÷ 1,350 = $108.15 per hour.
This covers your business costs, target income and estimated tax allowance. Now, you'll need to add your target profit margin.
Learn about running a break-even analysis for your small business.
A 15% profit margin means leaving 15% of the calculated revenue as additional business profit, after allowing for the costs, income and tax allowance entered.
To calculate it, divide your annual requirement by 0.85, then divide by your billable hours:
$146,000 ÷ 0.85 ÷ 1,350 = $127.23 per hour.
Adding a 15% markup produces a different result, so use this margin formula to match the calculator.
Use our free Profit Margin Calculator to work out your profit on any job!
Enter the figures you’ve gathered into Tradify’s Charge-Out Rate Calculator to work out your hourly rate.
Start with your income target, estimated tax percentage, working hours, time off, staff numbers, wages and expenses. Open “Add more detail” to include subcontractor costs, tools and equipment, other annual expenses and your target profit margin.
Check whether each field asks for monthly or annual costs, and count each expense once. If you’re unsure how many hours you can charge for, tracking your time can help you replace estimates with actual figures.
Using our example, an $80,000 income target, a 20% tax allowance, $50,000 in annual business costs, 1,350 chargeable hours, and a 15% profit margin gives $127.23 per hour.
If you employ staff, use costs for the whole business. Enter non-billable hours as the combined weekly total for you and your team. The result is an average rate across the business’s chargeable hours.
Once you start using your rate, track your job costs to see how actual time and expenses compare with your quotes. Revisit the calculator when wages, fuel bills or staffing change, and ask your accountant if you need help checking your figures.
Next, compare your calculated rate with what similar businesses charge in your area.
Once you’ve used our Charge-Out Rate Calculator, check what similar businesses charge in your area. Look at businesses offering the same type of work, and if you can, check what their prices include — travel, materials and call-out fees can make a difference.
As you compare prices, consider:
If your rate is lower, check that you’ve included all your costs and allowed for time you can’t bill for. There may be room to raise your prices while staying competitive. You don’t need to be the cheapest. Your experience, specialist skills, clear communication and workmanship all help customers decide who to hire. Make those benefits clear in your quotes so customers can see what they’re paying for.
Use competitor prices as a reference, then track your job costs to check how your rate works in practice. Matching someone else’s price won’t help if it leaves you short on every job.
Want to compare employee wages too? See our guide to the Highest Paying Trades — Average Pay Rates for Tradespeople.
What you charge for your services can have a dramatic effect on your bottom line, but also on how your customers view and respond to you. In other words, your reputation is on the line.
People want to be sure they’re getting the best bang for their buck, and sometimes tradespeople are unfairly perceived to be fleecing customers with their hourly rate. Doing the correct calculations yourself means it's easy to explain your charge-out rate to customers who may have questions.
It could be that your business needs more than one hourly charge-out rate. We took a look at the different rates being charged by Tradify customers, and most of them have more than one charge-out rate, including:
Some generous Tradify clients even include pre-set billing rate categories such as 'Mates Rates', 'Family', or 'No Charge' in order to charge out jobs at discounted rates.
Our Charge-Out Rate Calculator should be used as a guide — a way to check that the rate you’re charging will cover your costs and provide the income and profit you’re aiming for.
Charging call-out fees willy-nilly isn't a great way to keep customers on your side. However, there are some instances where it's more than fair to charge a call-out fee. Here's when you can include a call-out fee without burning any bridges:
Whatever the reason for charging a call-out fee, make sure that you're upfront about this charge before you agree to come to the site. This will avoid any disputes that could arise from a lack of communication, and make charging for it much less of a hassle.
By now you should be able to see why it’s essential to look at all the different factors when you’re deciding on your hourly charge-out rate. It can seem a bit daunting at first, but it’s a crucial exercise that will instantly benefit your business.
Your charge-out rate calculations should be looked at on a regular basis. This will help you make sure that your prices remain competitive, that they align with market rates, and are helping to increase your profit margin.
We hope we’ve made this task easy with our Charge-Out Rate Calculator, so get all your details together and start crunching the numbers. If you’ve got any questions about our charge-out rate calculator, get in touch.
If you’d like to find out how Tradify can help boost your business’s bottom line, try it free for 14 days.
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