Quick question. How did you actually arrive at your hourly rate?
Be honest with yourself here.
Did you sit down one afternoon, work out your overheads, add your desired wage, factor in the reality of non-billable hours, tack on a real profit margin, and land on a number? Or did you look at what the tradie down the road was charging, take off ten bucks so you could “stay competitive”, and start quoting?
Somewhere between 80 and 90 percent of the tradies we speak with when they first come to Lifestyle Tradie fall into option two. And every single one of them, when we sit down and rebuild the rate from the bottom up, discovers the same thing.
They’re not charging enough.
Not by ten percent. Not by twenty percent. Often by half.
Table of Contents
The four things your hourly rate has to cover
A real hourly rate has to cover four things. Any rate that skips any of them is a rate that’s slowly bleeding your business. Most rates skip two or three.
1. Your wages. What you personally want to earn. Not “what’s left over at the end of the year”, not “whatever the business can spare”. A real, planned, paid-every-fortnight owner wage. If you were working for someone else at your level of skill and experience, what would you be paid? Start there. That’s the first number.
2. Your overheads. Everything the business costs to run before a single job goes out. Rent (or a home office rate). Vehicles (loans, fuel, servicing, insurance, rego). Insurance (public liability, workers’ comp, business insurance). Software (job management, accounting, phone system). Admin support. Marketing. Accounting and bookkeeping. Bank fees. Subscriptions. The lot. Add them up for a year. Divide by your billable hours. That’s your overhead-per-hour, and it belongs in your rate.
3. Your non-billable time. This is where most tradies are miles off. You do not bill 40 hours a week. You bill drive time as billable when it isn’t (or you eat it). You take annual leave. You have sick days. You do quotes, training, meetings, admin, warranty callbacks. When you’re being honest, a full-time tradesperson bills closer to 25 productive hours a week, not 40. Your rate has to be built on the 25, not the 40. If you build it on 40, you’re subsidising the other 15 out of your own margin.
4. A profit margin. Profit is not “whatever’s left”. Profit is a line item you build into the rate on purpose, so the business can reinvest, weather slow patches, and pay you a distribution beyond your wage. What you set it at is your call. What you cannot do is set it at zero.
If you want the audio version of this argument, Price for PROFIT in Your Trade Business! on The Tradie Show is the go-to episode. For the psychology of raising prices without losing sleep, Pricing Psychology 101: Setting Rates & Attracting A-Grade Clients is the pair.
The 40-hour trap that catches every tradie
The single most common pricing mistake we see is the 40-hour billing assumption.
Here’s how it plays out. A tradie decides they want to earn (let’s say) $120,000 a year. They divide that by 52 weeks, then by 40 hours, and land on around $58 an hour. They tack on some materials markup, quote a few jobs at that rate, and off they go.
Except they never bill 40 hours in a week. They bill maybe 25 to 28 hours in a good week, and less in a bad one. So the $58 an hour has to cover 40 hours of activity with only 25 hours of revenue. Which means the effective rate they’re actually earning is closer to $36 an hour. Which doesn’t cover the overheads, let alone the profit.
This is why so many tradies are working 55-hour weeks, doing everything themselves, and still not paying themselves properly. The rate isn’t wrong at the top. The rate is wrong at the bottom, because the billable-hour assumption underneath it is fantasy.
We break down the numbers side of this properly in Where’s My Profit? Unveiling Money Mistakes & Mastering Profit Margins in Trade Businesses on The Tradie Show.
A napkin-maths reality check you can do today
You don’t need software to know if your rate is broken. You need ten minutes and a napkin.
The five-line test:
- What do you want to personally earn a year? (Be brave. That’s line one.)
- What are your business overheads for a year, everything included? (Rough is fine. Line two.)
- Add them. That’s your revenue target. Line three.
- How many billable hours does your team (including you, if you’re on the tools) actually deliver in a week? Multiply by 48 working weeks a year. Line four.
- Divide line three by line four. That’s the minimum rate the business needs to average, per billable hour, just to break even on those two numbers. Add a profit margin on top for a real target.
For most tradies who’ve never done this exercise, the number that comes out is 20 to 40 percent higher than what they’re currently charging.
That’s how much profit is walking out the door on every job.
For the free tool that formalises this at concept level, download our Understanding Your True Profit guide. Cash-flow-wise, our Tradie Cash Flow Control Sheet gives you the weekly rhythm to keep the numbers honest.
The full Hourly Rate Calculator with the formulas built in lives inside Lifestyle Tradie, where members work through it with us.
Why undercharging is a discipline problem, not a market problem
Every tradie who’s told they’re undercharging responds with the same objection.
“But my customers won’t pay more.”
Sometimes that’s true. Usually it isn’t.
What’s usually true is that the tradie has been attracting price-shopper customers because they’ve been marketing themselves as the cheap option. Or they’ve built a customer base that’s used to their current rate, and the discomfort of raising it is scarier than the reality. Or they haven’t developed the language and confidence to present a proper quote at a proper price without apologising for it.
None of those are market problems. They’re discipline problems. And they’re all fixable.
Our free Quote Flow Cheat Sheets walk through the structural side. Win More Quotes Now tackles the confidence side. Both work.
There’s also a real note to make on obligations. Whatever you charge, the ATO’s small business essentials apply. GST, BAS, PAYG, super. Those are non-negotiable, and any rate that doesn’t leave enough room for them isn’t a rate. It’s a spiral.
And a note on the emotional side. A price that scares you slightly when you send the quote is a price that’s probably about right. If you don’t feel that little tightness in your stomach, you’re almost certainly still too cheap.
Where to start this week
Three moves for the next seven days.
1. Do the napkin-maths test above. Ten minutes. On the back of an actual napkin if you want. Write down the number that comes out.
2. Compare it honestly to what you’re actually charging. If the gap is 20 percent or more (and for most tradies it is), your business has been quietly bleeding for a while.
3. Pick your next quote and price it at the real rate. Just one. See what happens. You will lose some jobs at the new price. You will also earn more from the ones you win, and start attracting a different, better calibre of customer. That is not a bug. That is the point.
Broader picture on knowing your numbers lives in the cornerstone: Profit Mastery for Tradies: Know Your Numbers, Own Your Future. For the marketing side of attracting customers who’ll pay a proper price, cross into Marketing for Tradies: How to Attract, Convert, Deliver and Retain More Customers.
Ready to know what you should actually be charging?
Inside Lifestyle Tradie, members get the actual Hourly Rate Calculator we built at Dr.DRiP, with the formulas plugged in and the industry benchmarks pre-loaded. Plus the Materials Multiplier Matrix, the Quote Trackerâ„¢, and the pricing-conversation coaching to hold the line when customers push back.
It’s the same financial discipline that built Dr.DRiP into a business worth selling. And it’s what hundreds of Australian trade business owners are using right now to stop leaving money on the table.
If you suspect you’re undercharging (and if you’re reading this, you probably are), book a free 30-minute Gameplan Call. We’ll look at your current rate, your billable hours, and your margin, and tell you where the leak is.
Or see what’s inside the membership: See what’s inside Lifestyle Tradie