How to Work Out Your Charge-Out Rate
Most tradies set their hourly rate by asking a mate what they charge. Here's how to work it out properly — from the income you want, the hours you can actually bill, and the overheads nobody counts.
The most expensive number in your business is the one you guessed. Set your charge-out rate by matching the bloke down the road and you inherit his costs, his overheads and his mistakes — and you'll never know which jobs are carrying you and which ones you're subsidising. This guide works the number out from the ground up: what you want to earn, how many hours you can genuinely bill, what it costs to keep the ute on the road, and the margin that makes it a business rather than a job.
Doing this job for a living? See job management in ServiceYak.
Why copying someone else's rate fails
Two tradies in the same suburb doing the same work can need very different rates. One owns his ute outright and works from home; the other has finance, a yard and an apprentice. Same trade, same jobs, completely different number required to come out ahead.
Your rate has to cover four things, in this order. Miss any one and the rate is wrong no matter how competitive it looks:
- The income you want to take home.
- The hours you can actually charge for — which is well under the hours you work.
- Your overheads — everything you pay for whether or not you're on a job.
- A margin on top, so the business makes money rather than just paying you.
Step one: your real chargeable hours
This is where most rates go wrong. You do not bill 38 hours a week. You bill the hours you're actually on a job, and the rest goes to quoting, travel, supplier runs, invoicing and chasing money.
- Start with the weeks you work. 52 weeks, less annual leave, public holidays and the weeks you lose to weather or sickness. For most sole operators that's about 46 working weeks.
- Take out the unbillable hours. Quoting, travel between jobs, supplier trips, admin and invoicing. Realistically that's 20–30% of the week gone before you touch a tool.
- Land on chargeable hours per week. A 38-hour week usually leaves 28–32 genuinely chargeable hours. Be honest here — an optimistic number here quietly under-prices every job you quote.
- Multiply out. 46 weeks × 30 chargeable hours = about 1,380 chargeable hours a year. That's the number your whole rate divides across.
If you've never measured this, your first job is to find out rather than estimate it. A week of honestly logging where the hours went is usually a shock, and it's the single most valuable week of admin you'll ever do.
Step two: count every overhead
Overheads are the costs that exist whether or not you're working — and they're the ones most commonly left out of a rate. Add up the annual figure for all of them:
| Category | What it covers |
|---|---|
| Vehicle | Finance or depreciation, fuel, servicing, tyres, registration |
| Insurance | Public liability, tools, income protection, professional indemnity |
| Tools and equipment | Replacement, repairs, hire, consumables not billed to a job |
| Licences and registration | Trade licence, association memberships, certifications |
| Phone and software | Mobile plan, job management software, cloud accounting |
| Professional fees | Accountant, bookkeeper |
| Marketing | Website, signage, listings, advertising |
| Premises | Yard, storage, or a share of home costs if you work from home |
For a typical sole operator that total commonly lands somewhere around $30,000–$40,000 a year. Use your own figures rather than that range — the point of this exercise is that your business isn't average.
Step three: the calculation
With those two numbers you can work out your break-even rate — the point at which you've covered your costs and paid yourself, and made nothing. Take a tradie wanting $120,000 take-home with $35,000 of overheads and 1,380 chargeable hours:
| Step | Figure |
|---|---|
| Target income | $120,000 |
| Plus overheads | $35,000 |
| Total to recover | $155,000 |
| Divided by chargeable hours | ÷ 1,380 |
| Break-even rate | $112 per hour |
At $112 an hour this tradie earns exactly what they wanted and the business banks nothing. Every quiet week, bad debt, warranty callback or tool failure comes straight out of the income. That's why the rate you actually charge has to sit above break-even.
Step four: margin, and why markup isn't the same thing
This is the step that catches people out, and it costs real money. Markup is what you add to your cost. Margin is what's left as a share of what you charged. They are not the same number, and quoting one while thinking you're getting the other is a common way to run thin.
- Adding 20% markup to a $112 break-even gives $134. Your actual margin on that is 16.7%, not 20%.
- Getting a 20% margin means dividing by 0.8 — $112 ÷ 0.8 = $140.
- The gap is $6 an hour, which over 1,380 hours is about $8,000 a year you thought you'd priced in and hadn't.
So a realistic charge-out rate for this tradie is $140 an hour — break-even plus a genuine 20% margin. That margin is what absorbs the quiet fortnight, the client who pays late, and the job that goes wrong.
Apply the same distinction to materials. If you mark up materials 20% and think you're making 20% on them, you're making 16.7%. Decide whether you're quoting markup or margin and be consistent about it across labour and materials both.
Step five: sense-check against the market
Now — and only now — look at what others charge. The order matters: you're checking your number, not copying theirs. If your calculated rate lands well above the local market, the answer is rarely to drop the rate. Usually one of these is true:
- Your chargeable hours are too low — too much time going to quoting, travel or admin you could cut.
- Your overheads are high for the size of the business.
- You're genuinely worth more and need to say why: response time, warranty, finish, compliance paperwork.
Dropping your rate to match the market without changing anything underneath just moves the shortfall onto you. If you can't charge the number the maths gives you, fix the maths — not the number.
When one rate isn't enough
Most established trade businesses end up with several rates rather than one, because not all hours cost the same to supply:
- Standard rate — your normal working hours.
- After-hours and emergency — a premium that reflects genuinely disrupted time.
- Apprentice or second-hand rate — priced off their cost, not yours.
- Commercial versus residential — different paperwork, insurance and payment terms.
- Day rate — for jobs that are hard to scope by the hour.
ServiceYak keeps your labour rates, materials and line items in a reusable kit, so the rate you worked out here is the one that lands on every quote — and you can see what each finished job actually made against it.
Frequently asked questions
How do I calculate my charge-out rate?
Add the income you want to your annual overheads, divide by your genuinely chargeable hours to get a break-even rate, then divide that by (1 − your target margin). For $120,000 income, $35,000 overheads and 1,380 chargeable hours, break-even is $112/hour and a 20% margin makes it $140.
How many hours a year can I actually charge for?
Far fewer than you work. After annual leave, public holidays and weather you're at roughly 46 working weeks, and quoting, travel, supplier runs and admin take 20–30% of each week. That usually leaves 28–32 chargeable hours a week, or around 1,300–1,500 a year.
What's the difference between markup and margin?
Markup is added to your cost; margin is what's left as a share of the price. A 20% markup on $112 gives $134 and a real margin of 16.7%. To get a true 20% margin you divide by 0.8, which gives $140. Confusing the two is one of the most common ways tradies quietly under-price.
Should I charge different rates for different work?
Usually yes. After-hours work, apprentice hours and commercial jobs all have different costs and risks behind them, so a single blended rate either over-prices your easy work or under-prices your hard work. Set a standard rate first, then build the others off it.