How to Calculate an Hourly Rate as a Tradie in Australia

1. Work out the income you need

Start by considering how much money you need your business to generate for the work you do. This is different from simply choosing an hourly amount that sounds reasonable.

Your target can depend on your personal circumstances, business structure, existing income, financial goals and the amount of work you expect to complete.

If you are working as a sole trader, for example, the money available to you after business expenses is different from the amount a customer pays for your labour.

2. Calculate your business overheads

Business overheads are ongoing costs that are not necessarily tied to one particular job but still need to be paid.

Depending on your business, these could include:

• Vehicle and fuel costs
• Tools and equipment
• Insurance
• Accounting and bookkeeping
• Software and subscriptions
• Phone and internet costs
• Rent or workshop costs
• Advertising and marketing
• Office and administration costs

You do not necessarily need to charge each overhead directly to a customer. Instead, your overall pricing needs to generate enough revenue to contribute towards these costs.

3. Estimate your billable hours

This is one of the most important parts of calculating an hourly rate.

If you work 40 hours a week, that does not necessarily mean you can charge customers for 40 hours every week.

Some of your time may be spent on:

• Preparing quotes
• Travelling between jobs
• Buying or collecting materials
• Answering customer enquiries
• Administration and bookkeeping
• Planning and scheduling
• Cleaning and maintaining equipment

You should also consider holidays, public holidays, sick days and quieter periods when estimating how many hours you can realistically bill.

Using realistic billable hours rather than total working hours can give you a more useful picture of the rate your business needs to charge.

4. Add a profit allowance

Covering your costs is not the same as making a profit. Businesses generally need some amount left over after expenses to remain sustainable and support future growth.

Your desired profit can depend on your business goals, the risks involved in the work, your market and the amount of money you need the business to generate.

There is no single profit amount or margin that is appropriate for every Australian tradie or small business.

5. Use a simple hourly-rate formula

Once you have estimated your required income, business costs, desired profit and realistic billable hours, you can use a simple calculation to estimate an hourly rate.

Hourly rate = (income required + business costs + profit) ÷ billable hours

For example, imagine a business needs to generate $90,000 over a year for the owner's required income, business costs and planned profit, and expects to have 1,000 billable hours.

The calculation would be:

$90,000 ÷ 1,000 billable hours = $90 per hour

This is a simplified example designed to demonstrate the calculation. Your own figures will depend on your business and circumstances.

What if you have employees or contractors?

If other people work on your jobs, their costs also need to be considered when setting your prices.

Depending on how your business operates, this could include wages, contractor payments and other employment-related costs.

You should consider the total cost to the business rather than treating an employee's base hourly wage as the only labour cost.

The rate you charge a customer may therefore be higher than the amount paid directly to the person performing the work.

Should your hourly rate include travel?

Travel takes time and can create vehicle and fuel costs, so it is worth considering when calculating your overall pricing.

Some businesses charge travel separately, while others build travel costs into their hourly rate or overall job price.

The approach you use should be clear to the customer and should make sense for the type of work you provide.

Should GST be included in your hourly rate?

If GST applies to your business and the transaction, you need to account for it correctly when setting and displaying your prices.

Whether your advertised or quoted hourly rate is presented as GST-inclusive or GST-exclusive can depend on your business and the circumstances of the transaction.

GST registration and obligations depend on your circumstances. For current information, check the guidance from the Australian Taxation Office .

Hourly rate example for a small trade business

Imagine a small business wants to account for the following annual amounts:

• Required income: $65,000
• Business overheads and other costs: $20,000
• Desired profit: $15,000

The business therefore needs to generate $100,000 before considering how GST should be handled.

If the business expects 1,000 billable hours during the year:

$100,000 ÷ 1,000 = $100 per billable hour

If the business only has 800 realistic billable hours, the calculation changes:

$100,000 ÷ 800 = $125 per billable hour

This demonstrates why the number of billable hours can have a significant effect on the hourly rate a business needs to charge.

How to know if your hourly rate is too low

An hourly rate may need reviewing if your business is regularly busy but there is not enough money left after paying its costs.

It can also be a warning sign if you regularly find yourself working unpaid hours that were not considered when setting your rate.

Review your actual business expenses and billable hours rather than relying only on what other businesses charge.

How to review your hourly rate

Your hourly rate does not have to remain the same forever. Reviewing it periodically can help you account for changes in your business.

Consider reviewing your rate when:

• Your operating costs increase
• Your tools or equipment costs change
• Your vehicle costs change
• Your workload or billable hours change
• You take on employees or contractors
• Your business goals change
• You start offering more specialised services

Keeping track of your actual costs can make these reviews much easier.

Hourly rate vs fixed-price jobs

An hourly rate is useful for calculating the labour component of many jobs, but you do not necessarily have to charge customers by the hour.

For predictable work, a fixed-price quote can give the customer a clear price before the work begins.

You can still use your hourly rate internally when estimating how much labour a fixed-price job will require.

For example, if you estimate that a job will require 5 hours at a $100 internal labour rate, that gives you a starting labour cost of $500 before adding materials, other job costs, overhead allocation and profit.

For more information, see our guide to working out what to charge for a job in Australia .

Don't base your rate only on competitors

Looking at what other businesses charge can provide useful information about your market, but copying another business's hourly rate does not necessarily make it suitable for your own business.

Different businesses can have different overheads, experience, equipment, operating costs, service levels and amounts of billable work.

Use competitor pricing as one piece of market information, then check whether your own rate covers the costs and income your business requires.