The most common pricing mistake in the trades is setting your rate by looking at what other people charge. Their costs, hours and goals aren't yours. A rate copied from a competitor might suit a one-person business with no van payments, and sink a business with two employees and a workshop. Build your rate from your own numbers, then compare it with the market.
Step 1: what you need to pay yourself
Start with the yearly income you need, before tax. Include superannuation (employees get 12% on top of their wage, so fund the same for yourself), income protection insurance, and an allowance for holidays, public holidays and sick days, which no employer is paying for. Self-employed people have no paid leave, so your rate has to fund the weeks you don't work.
Step 2: what the business costs
List every overhead for a year: van and fuel, insurance, tools and replacements, phone, software, accountant, advertising, workwear, training, licence fees, tickets and trade association memberships, bank fees, workshop or storage, and the cost of equipment wearing out. Most small contractors underestimate this by a third. Go through a year of bank statements to find the real number.
Step 3: your billable hours
This is where reality bites. Out of a 50-hour week, how many hours are actually charged to a client? Quoting, buying materials, travelling, admin, callbacks and weather all eat into the week. Twenty-five to thirty-two billable hours a week is typical. Then take off holidays and slow periods: 44–48 working weeks is realistic.
| Where the week goes | Typical hours |
|---|---|
| Billable work on site | 25–32 |
| Travel and collecting materials | 5–10 |
| Quoting and site visits | 3–6 |
| Admin, invoicing, calls | 3–5 |
| Callbacks and snagging | 1–3 |
Step 4: do the sum
break-even rate = (pay + overhead) ÷ (billable hours per week × working weeks)
Add a profit percentage on top, so the business can save, invest and survive a bad month. Profit isn't greed: it's the money that pays for the next van, a quiet January and the job that goes wrong.
Example: $90,000 pay + $25,000 overhead ÷ (30 h × 46 weeks) = $83.33/h break-even. With 10% profit, that's about $92/h, or about $730 for an 8-hour day, plus GST if you're registered.
Employees cost more than their wage
If you employ people, their cost per hour is much more than their wage: add superannuation, workers' compensation insurance, annual leave, sick leave, public holidays, long service leave and, for larger businesses, payroll tax, then divide by the hours they're actually productive. A worker paid a given wage often costs the business 25–40% more. Charge them out at a rate that covers that cost, a share of overhead, and profit.
Day rates and fixed prices
Many tradies charge by the hour, but most homeowners prefer a fixed price for the job. Both start from the same hourly figure. A fixed price is your estimated hours × your rate, plus materials, plus a contingency for the unknowns. Fixed prices reward efficient crews and good estimating, which is a good reason to track actual hours against quoted hours.
Check it against the market
Once you know your number, compare it with local rates. If the market won't pay it, you need to cut overheads, raise billable hours (less travel, better scheduling, fewer callbacks), or move into work that pays better. Pricing below your number just means paying to go to work. If your number is well below the market, you're probably leaving money on the table.
Review it every year
Costs rise every year: fuel, insurance, materials, software. Rework the sum each January, and raise your rates in line. Small annual increases are easier for clients to accept than one big jump after several years.
The hourly rate calculator does this sum for you, the crew hours calculator turns start and finish times into labour cost, and the travel cost calculator prices time on the road.
Common questions
Should I charge for travel?
Travel is a real cost, so it has to be covered somewhere: in your rate, as a separate line, or in a minimum charge. Jobs far outside your usual area deserve a travel charge or a higher price.
Should I charge for quotes?
Most domestic clients expect free quotes for straightforward work. For detailed designs, surveys or long site visits, many contractors charge a fee that's credited against the job if it goes ahead.
This guide is general information for estimating. It is not engineering, legal or tax advice. Check the NCC, Australian Standards and your building surveyor or certifier for your project.