How Much Are Your Tradies REALLY Costing You? 

Andy
That’s why in today’s episode, we are breaking it all down. The real cost of having someone on your team. Most tradies kind of guess this, but today, You can stop the guessing game, start charging right, and finally get back in control of your profits.

You are listening to The Tradie Show. This is the podcast for trade business and contracting bosses like you who wanna lead with confidence, make more profit, and create a better lifestyle.

Ange
We’re your hosts, Andy and Angela Smith, husband & wife team and co-founders of Lifestyle Tradie. Are you ready to have some fun?

Andy
Hell yeah!

Ange
When you are running flat out in your trade business, it’s easy to overlook stuff like awards. But here’s the thing, being seen as an authority in your trade business builds immediate trust, And Trust attracts better quality customers. Right now is your opportunity to enter the Australian Trades Small Business Champion Awards. Plus it’s the chance to reflect on the fact that you really have built something worth celebrating. We won multiple awards with our plumbing business, Dr.DRiP, which we used as a marketing tool, and reaped the rewards for over 20 years. We know they work, and that’s why we help our Lifestyle Tradie members do the same, and we encourage you to take advantage of them too. So if you’ve been putting in the hard yards, no matter the size of your business, it’s time to back yourself and enter these awards. Head to championawards.com.au/trades to get your entry in today. And when you attend the gala dinner, come say hi to Andy and I, we’ll be there to cheer you on.

Andy
All right. It’s time to kick things off with some Hell yeah Wins from our amazing Lifestyle Tradie members. Hell yeah! These are the legends who’ve been smashing it in their businesses, proving that small changes can lead to massive results, and hopefully these give you some inspo on what you can do in your business. Ange, what do we have this week?

Ange
We’ve got some great hell yeahs to share today, Andy. First up is a big shout out to Dave who runs a painting business in Melbourne. And he said three new awards at the Master Painters awards, and it was good to celebrate the wins with my staff.

Andy
Mate, that is absolutely awesome. And I know your trophy war is looking pretty impressive these days.

Ange
Absolutely.

Andy
So who’s next, Ange?

Ange
Alright, so next up is Paul, who’s an air conditioning technician in New South Wales, and he writes. Got smashed with quotes that ended up being the highest value I’ve quoted and now I’m on the Gold Coast looking at potential investment properties. Winning!

Andy
Mate, you are winning and I think for all us tradies out there, have a good business, make some good money, and then look at investing in property or something alike. So who else have we got?

Ange
Okay, next up is Rachel and Beau who are new members of Lifestyle Tradie. They run a construction company in Southeast Queensland and they wrote, “This is the first time my husband and I have been able to step away from being in the office and on the tools and take our kids on a four day getaway without closing our business down for two days.”

Andy
Hell yeah! That is an absolute cracker. The amount of people that we know that just haven’t been going on holidays with their businesses, it’s pretty scary. You’ve gotta get out there and live your life too.

Ange
Alright, there’s one last Hell yeah from Ashley who runs a plumbing and gas company in Perth who posted a screenshot from a thank you from one of their customers. The message read. You’ve definitely missed your vocation. Instead of being a plumbing and gas technician, you most definitely should have taken up being a salesman. All I wanted when I organized your call out was to have our gas heater serviced. Within 30 minutes, you’d persuaded us to get over $2,000 worth of necessary maintenance done. You are good. Very good. And I was a sales manager for well over 30 years, so I recognize your skillset. Well done Young man and all the best to you and your team.

Andy
That is a massive Hell yeah! Ashley’s team have done this Sales Success Series and they’ve really implemented that in their business so well. And when you’re getting customers saying that back to you, they are the customers you want and you want ’em for life. That’s what we’re all about here, Helping tradies like you take control, make changes, and see the wind roll in.

Every time we run our mastermind sessions with our members without fail, one of the biggest struggles that gets brought up is people. Whether it’s hiring, managing, or keeping the team accountable, the people’s stuff is always at the top of the list.

Ange
And part of that is knowing what your team actually costs you. I mean, what they really cost you, not just he’s on 45 bucks an hour. We’re talking about all the hidden stuff that gets missed. Because if you are basing your quotes or your charge out rates on just what you pay someone by the hour, you are setting yourself up to lose.

Andy
And if you don’t know your real cost, you can’t quote properly as well. You are just hoping you’ll end up with profit at the end of the day. So we are gonna help you work out what tradies on your team are really costing you.

Ange
If you’ve got a team, even if it’s just one guy or someone in the office, you need to hear this. Let’s crunch the numbers step by step.

Andy
Okay, so let’s start with the average plumber. Right now that’s around about $88,920 a year, which works out to be $45 – $60 an hour. Now, obviously a more experienced plumber would be on more, and a junior staff might be on a little bit less, but that’s just the average.

Ange
And that also depends on what city or region you’re in. Usually in the big cities, your wages are higher because the cost of living is higher.

Andy
Yep, of course. But I reckon most tradies stop right here. They think, okay, he’s on 45 bucks an hour, so I’ll charge him out at $70. So I’m making $25 an hour on each guy, but that is just wrong because that’s just his wage. You have to add in all the other stuff.

Andy
Yes, exactly. You are legally obligated to pay superannuation, which as of the 1st of July hits 12%. This equals $10,670 a year. Then you’ve got work cover insurance. That’s another 5% depending on the state you’re in and your trade. So let’s call that another $4,450.

Ange
Just right there. Your $88,000 employee actually costs you $104,000, and we haven’t even talked about the time. They simply aren’t there to charge billable time.

Ange
Ah, yes, let’s talk about that. That’s where it really adds up. We’re talking four weeks of annual leave, 10 days of sick days, 10 days public holiday. That’s 40 paid days off, which means out of 52 weeks, they’re only working 44, or that means 1,760 hours a year.

Andy
And that’s being generous. Ange, I feel like I need a big whiteboard to ride this all out.

Ange
Yeah, so true. Guys, If you are driving while listening right now, obviously you can’t write this down, but it is a really good idea to do this for your business when you can. Lock in some time in your calendar because when you do that, it gets scheduled and therefore it gets done. When you break these numbers down like this, you start to really see what eats up all the profits that you think you are making.

Andy
So many tradies don’t get to the nitty gritty of their numbers. And then get to the end of the financial year and go, Hey, where’s all my profit gone? We started working with one couple last year who had the exact reaction at tax time. They had this amazing electrical business, a great team, a million dollars in revenue and work booked out for months in advance. But at the end of the financial year, they had only made $10,000 profit. I’ll say that again. A million dollars in revenue and only $10,000 in profit.

Ange
That is not okay.

Andy
No, it’s not.

Ange
One of the reasons, of course, was because they misunderstood what their tradies were really costing them, meaning they were charging them out way too cheap.

Andy
And the other thing that catches tradie bosses out is they’re not charging out all of the 38 to 40 hours a week. Even the best teams only hit around 80% chargeable time, and that’s only if you’ve got the best systems humming, you lose hours, to small quotes, travel time, standing around, waiting on site, picking up gear from the supplier, loading the van and all of that as well.

Ange
Yeah, look, I remember a member telling us one of his guys would take 40 minutes just to get going in the morning. He’d be fluffing around stocking the car, chitchatting. You know what? It all adds up.

Andy
Okay, so let’s work it out. You’re paying this bloke 104K, right? But you are only able to charge him out for say, 80% of his time. Now, charging only 80% of the time takes us to 1,408 hours a year. So, so far, that puts your cost chargeable per hour at over $74. And we haven’t even added a car yet.

Ange
Yes, a vehicle. Okay, so these days you are looking at 15 to 20K a year, but let’s be conservative and say 15K. There’s fuel,  insurance, tires, servicing, you know the lot.

Andy
So now you’re sitting at over 104K in wage costs, plus at least 15K for the van. Now you’re at 119K a year just to have this guy on your team. Now let’s divide that by 1,408 billable hours, and that’s a cost of $84, 52 an hour, not $45, not even close. And if you’re charging him out at 70 bucks an hour, do you see how you’re literally going backwards every single Hour.

Ange
Yes. There is no profit for you at that rate.

Andy
I had this member of Lifestyle Tradie start with us a few years ago. Matt, he was an electrician from the central coast, just north of Sydney, and he told me he was flat out, he had a team of three, heaps of work coming in and he felt like his business was absolutely killing it. But when we sat down and did the numbers, he was actually losing around $10 an hour per tradie every single hour they worked.

Ange
Oh, it’s kind of scary that he had absolutely no idea.

Andy
And all he really knew was there was never any money left at the end of the month, and his cashflow was super poor.

Ange
That’s crazy.

Andy
It’s such a common story though, Ange, you know, a tradie boss, they’re running themselves into the ground, doing quotes at night, fixing problems on the weekend, all for nothing. If I even have a team and think, this surely should make me better money.

Ange
But it doesn’t. This is why you’ve got to know your numbers because guessing it just doesn’t cut it. If you don’t know what each team member costs you per hour that you actually bill out, you are just guessing, and that’s just hard costs of employing a tradesperson. We haven’t discussed the implications of adding operational costs of the business.

Andy
Yeah. Wow. Operational costs. Now it starts to change, doesn’t it?

Ange
It does, because you do actually need to be charging the operational costs out across your team as well when it comes to your billable time. If you don’t know all of these numbers, you can’t quote properly, you can’t scale, and you are definitely not banking profit.

Andy
That is a huge 100% right there, Ange. There’s a difference between running a business that works for you. First, running a business that’s chewing you up and spitting you out.

Ange
You know what crew, if this is hitting home, then that’s actually really good. It means you’ve got a chance to fix it because once you know the number, you can do something about it.

Andy
Alright, so maybe you are sitting there thinking to yourself, hang on, I don’t have full-time staff. I just got subbies. All subcontractors and they’re easier. I don’t have to deal with all the extra costs. Right?

Ange
Um, yes, no super, no holidays, no sick leave. They bring their own van, their tools, et cetera. It sounds great in theory, but of course the catch is they’re charging you more to cover all that stuff. You think you’re dodging the costs, but they’re just built into the higher rate. And let’s be real, Andy, Subbies, these days aren’t cheap. You are paying what, 55 bucks all the way up to maybe 70 bucks an hour?

Andy
Yeah. Subbies have absolutely gone through the roof, and I 55 I think is probably on the lower end depending on where you’re at, but Definitely, I’m hearing 70, even pushing into $80 an hour now, and sometimes more if they’re, no, you’re desperate. And look, you’re still only recovering about 80% of their hours. Same as an employee because you’re not charging for every second they’re out there. There’s still travel, smoke and delays on site, blah, blah, blah, blah, blah.

Ange
And that half hour supplier detour that somehow turns into a coffee break and a chat to their mate that they saw in aisle six.

Andy
Every bloody time.

Ange
The problem with subbies too though, Andy, is that they don’t usually charge you in hours. They generally charge day rates. So who the heck knows how far the hourly rate will literally blow out to. And the other thing I wanna point out here is you’ve got less control and no buy-in. They generally don’t care about your business the way an employee might care.

Andy
Yeah, it is true. And often they’re just there for the gig and they’re not putting in the hard yards and those extra little things that you need from an employee.

Ange
So you’ve then got the issue of subbies not following your systems to the letter. Right. They’re doing things their way and you know how we feel about systems in a trade business.

Andy
And another thing to mention here, Ange, and this is a real big one, you could get slammed by the ATO as well. If it walks like an employee, talks like an employee, you better believe it. The tax office will treat them like an employee. So be careful.

Ange
Yeah. It’s so true, right? We actually know a guy who did get hit with a 50 grand bill and then they audited him for three years straight.

Andy
Yep. It sounds really, really rough. And guess what? It was a total nightmare for him.

Ange
Another point about subbies that needs to get raised is think about the culture. If you’ve got a team of employees trying to build something solid and you’ve got subbies constantly rotating through, It kind of sends the message that no one’s really part of the crew. No one’s really equal.

Andy
And it can chip away at morale fast. So on the surface, contractors feel a bit easier, right? You don’t have to commit to keeping them long term and you just pull them in for one job here and another job there. But when you dig in, they come with their own headaches as well.

Ange
When you truly understand what your team is costing you, it’s like a light bulb moment. You stop looking at wages or subby rates in isolation and you start seeing the full picture.

Andy
And that picture tells you loud and clear. If you’re charging 70 bucks an hour and your real cost is pushing $84 plus, you’re not just under your digging yourself in a massive hole every single day.

Ange
And you know what? We get it. Most tradies never sit down to think about this kind of thing. They’re literally quoting on gut feel or just copying what the guy down the road charges.

Andy
Who’s probably broke anyway.

Ange
And that’s why inside Lifestyle Tradie, we built a detailed hourly rate calculator for our members. You literally plug in your real data like wages, super vehicle costs, your operating expenses. And it shows you what you should be charging to actually make money.

Andy
Not just money, but true profit. Isn’t that one of the reasons we actually started our trade business in the first place?

Ange
Absolutely. And the results are different for everyone. Your overheads might be higher, you might have a bigger team, and at the end of the day, there’s no one size fits all.

Andy
But the one size that definitely doesn’t fit. It’s pulling a number out of your ass, 70 bucks an hour or whatever it is for a tradie, Sounds about right. That is not a strategy, that’s just how you stay busy and still end up going broke. Ouch.

Ange
And that’s why understanding the cost of just your tradie or contractor is one thing. But learning the cost of the operating expenses in your business is quite another. I’m talking about admin wages, your vehicle, the rent, insurance, fuel, marketing costs, your accountant, the tools you purchase, software subscriptions, I could go on, but these need to be recovered by the hourly rate on your tradies heads.

Andy
And what about your wage? The business owner? Are you paying yourself at least market rate? Or did your clever accountant tell you not to bother taking a wage? It’d be better for the P&L later.

Ange
Oh, what? This is a hard no. You must be paying yourself a wage and superannuation so that you’re looking after yourself long term. Unless you have a massive real estate portfolio and your accountant is doing some real clever accounting, there is no good reason why you shouldn’t be paid a wage.

Andy
I agree, you need to make sure you are paying yourself a wage right now. And another thing, what about profit? If your pricing doesn’t take into account these costs and a decent profit, you’re not just running a business, you’ve just built yourself a job. And guess what? It’s a bloody stressful one at that and this is why knowing your numbers matter, and I know, I know I harp on about it, but once you get a handle on your numbers properly. Everything changes. Quoting gets easier. You stop second guessing your pricing. You charge with confidence Without sounding dramatic, it’s bloody life changing. Just do it.

Ange
I absolutely agree. Once you know what your team is truly costing, you know your real cost per billable hour, that’s the foundation. You get that right and everything else starts to fall into place.

Andy
It’s tradie dilemma time, and this is our Q&A segment where you let us know what you’re having trouble with in your business and we give you our best advice.

Ange
Okay, so today we have a question from Annie and Paul who run a plumbing business in the Blue Mountains in New South Wales, and they write. Hey, Andy and Ange. We’ve been running our plumbing company for about six years now and we are struggling to find and keep good staff. Every time we think we’ve got a solid team, someone quits and we are back to square one. We don’t have the time to be constantly hiring and training new people. How do we attract decent tradies who actually want to stick around?

Andy
Yeah. That is a bloody good question. There’s no doubt about it. And there’s a lot of people that are losing staff at the moment. They’re losing staff to bigger businesses. They’re losing staff for more money. And there’s, there’s all types of reasons why people are losing staff. But let me just start with this. Most young people coming through businesses at the moment, they wanna make sure that the business they’re working for is a winner. They wanna make sure that this business is going places and it’s gonna take them for the ride. Now, I will touch on this. In small business these days, you’ve gotta make sure as a business owner, you are making enough money so you can pay your staff top dollar, because everyone wants the big bucks. It doesn’t have to be the top of the top, but it’s gotta be right Up there. Now there’s another thing I’m hearing. If you don’t have your business set up the right way and you’re not structured the right way, and as I mentioned earlier, they don’t see a future, they will go to the big boys where there’s bigger teams and sometimes they feel like it’s more fun. Sometimes in the smaller businesses that it’s just a one man show and one other tradie, they’re thinking to themselves, you know what? There’s too much pressure on me here. I wanna go to a bigger team that has A better culture. So there’s a million things of why people don’t stay around. Listen, I think life since COVID, I hate to keep going back to that, but everyone sees that the grass is greener wherever it is these days. So it’s your job as a boss to make sure you hire the right people, you train them up to be the best of the best. You pay them the best of the best and you look after ’em the best way you can. And most of the people that are doing that, and you’ve got a great business that’s going somewhere, their tradies are sticking around for the long term because there’s no use moving anywhere else because they’re not gonna get much better for it. So they will stick with you. 

Ange
I would add that they want to feel valued, they want to be seen, they want their opinion to be heard and they want development. So as long as you as a business owner are constantly creating change for the better of the business, you are, you know, you’re looking to make improvements all the time, and you’re including them in the changes that you are making and you’re listening to them, they’ll feel valued. And therefore they’re going to maintain and hopefully stick around with you much longer. So thanks for riding in. Remember, if you have a question or dilemma in your business, then reach out to us and let us know what we can help you with.

Andy
Just before you go, it was interesting. I bumped into someone in Perth the other day.

Ange
Yes.

Andy
And they said, we’ve been listening to your podcast for a very long time and you haven’t been doing your hell Yeahs at the end as much.

Ange
Oh.

Andy
So are we ready? You gonna join in with me?

Ange
Okay. Let’s do it.

Andy & Ange
Okay. 3, 2, 1. Hell yeah!

Andy
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