Blog/ Pricing
How to work out your hourly rate
Many tradespeople set their hourly price by what others charge. At the end of the year it turns out they worked a lot and kept little. Here is the sum done the other way round: from what you need to earn.
Your hourly rate is not what you want in your pocket for an hour. It is the amount that has to cover your pay, tax, the van, tools, the phone and also the hours nobody pays for: travel, buying materials, quotes and invoices.
If you leave all that out, every extra job looks worth it, but at the end of the month there is no more money.
What goes into the hourly price
Start with the month, not the hour. Add up what you need to earn in a month:
- The amount you want to take home, and the tax your type of business pays on it. Ask your accountant for the exact figure.
- The van: lease or depreciation, fuel, insurance and repairs.
- Tools, workwear, phone, software, accountant and insurance.
An example: to take home 2,000 euros, with tax you need about 3,000 to 3,500 euros, depending on your type of business. In the example we take 3,200. The van is another 450 euros; tools, phone, accountant and the rest 250 euros. That is 3,900 euros a month in total. These are example figures, put in your own.
The most important number is not the rate but the hours you actually get paid for.
How many hours you can really bill
A month has about 168 working hours, but far fewer can be billed to clients. Some go on travel, the shop, quotes and paperwork. If you can bill two thirds, that is about 110 hours. The sum takes three steps:
- Add up the month's costs including your own pay and tax: 3,900 euros in the example.
- Estimate the hours you can bill to clients: 110 in the example.
- Divide: 3,900 / 110 = about 35 euros an hour before VAT. Bill travel and materials separately.
To know how many hours you really bill, you have to record them. Kvedo's timer counts the time on each job, travel is kept separate, and the reports show the hours you worked next to what you invoiced. After a couple of months your sum rests on facts, not guesses.
