How to set your hourly rate as a tradesperson

You charge a rate that looks fair, you work full weeks, and yet the bank balance never seems to catch up. This is very common, and the cause is usually the same: the hourly rate was picked by looking at competitors, not by starting from your own costs. Here is how to work out an hourly rate that genuinely covers your costs, your unbillable time and the income you want.

Why the market rate is not enough

Two tradespeople in the same trade rarely have the same costs, the same van or the same amount of travel. Copying someone else's rate means adopting their cost structure without knowing it. The market rate is still a useful reference, but to check your figure, not to set it.

The right order is: work out the minimum rate that pays your way, then compare it with the market. If yours is well above, look at your organisation and costs before cutting the price.

Step 1: list every yearly business cost

Go through the last twelve months of bank statements and group business spending. Typical items for trades:

• vehicle: finance or lease, insurance, fuel, servicing;
• business insurance;
• tools: purchases, repairs, consumables;
• workshop or storage, energy, phone and internet;
• software, accountant, bank charges;
• taxes and social contributions linked to the business, according to the rules where you work.

Include the rare but real costs: replacing a major tool every few years should be spread across each year. If you are just starting out, estimate each item from supplier prices, then correct it after a few months of trading.

Step 2: decide the income you are aiming for

Decide what you want to pay yourself over the year, after costs. Treat it as a decision, not as whatever is left over. When income is only what remains at the end of the month, the hourly rate is impossible to steer.

Add a safety margin for quiet months, unpaid invoices or a broken-down van. I recommend putting a figure on it rather than hoping for the best.

Step 3: count the hours you can really bill

This is the step that changes everything. Start from your working hours over a year, then take away:

1. 1holidays and public holidays;
2. 2days without work: bad weather, waiting for materials, seasonal gaps;
3. 3unbillable time: quoting, unpaid travel, buying materials, admin, chasing payments.

Track your own time for two or three weeks with a simple notebook. You will know how many hours out of ten are actually sold, which is far more reliable than any general rule.

Step 4: do the maths

Here is a worked example. Replace the figures with your own:

Assume 1,100 billable hours in the year. The minimum hourly rate is 66,000 ÷ 1,100, which is 60 per hour before tax. If you were charging 40, you were short by 20 on every hour you sold.

With 1,400 billable hours, the same total gives roughly 47 per hour. The lesson: gaining billable hours by cutting travel or quoting time lowers the rate you need as much as cutting costs does.

Using the rate in your quotes

Your hourly rate does not need to appear as such on every quote. You can turn it into unit prices per square metre, per fitting or per item, based on the average time each task takes you. Keep a small list of your usual jobs with their times: your quotes become faster and more consistent. A good tool keeps that list at hand in every quote; our guide on invoicing software for tradespeople explains what to look for, and what to put on an invoice covers the invoice that follows.

Review the calculation every year, or as soon as a major cost changes: a new van, a first employee, a new workshop.

Summary of the calculation