How to Calculate Your Hourly Rate as a Tradesperson

Most tradies pick an hourly rate out of thin air. Here's the proper formula, the costs to include, and how to get a number that actually pays you what you're worth.

If someone asked you right now how you worked out your hourly rate, what would you say? For most tradespeople, the honest answer is 'I copied what the last place I worked charged' or 'a mate told me to use this number'. That's how you end up earning less than you should while feeling like you're always working.

Your hourly rate is the single most important number in your business. Get it right and everything else works: you can pay yourself fairly, cover your costs, and save for slow months. Get it wrong and you're in trouble the moment a van tyre blows or a client pays late.

The formula

There's a simple formula for working out what to charge. It looks like this:

Hourly rate = (annual income goal + annual overhead costs + desired profit) / annual billable hours

Each piece of that equation matters. Let's walk through them one at a time so you can plug in your own numbers.

Step 1: Your income goal

Start with what you want to earn in a year for yourself, after tax. Be honest and realistic. This is your take-home pay, not your revenue. If you want R400,000 in your pocket each year, write that down. If you want £40,000, write that down.

Then add income tax on top, because you need to pay that out of your revenue. Depending on where you live and your tax bracket, that might be 20 to 35 percent. A safer approach is to run your income goal gross (before tax) so the tax is built in.

Step 2: Your overhead costs

Overhead is every cost of running your business that isn't a direct material on a specific job. Most tradies massively underestimate this. Go through a year's worth of expenses and total them up. Typical categories:

• Vehicle (fuel, maintenance, insurance, finance, depreciation)
• Tools (purchase, replacement, repair, calibration)
• Insurance (public liability, professional indemnity, tool cover)
• Phone and data
• Software (quoting, accounting, scheduling)
• Marketing (website, Google Business, leaflets, vehicle signage)
• Admin time you don't bill for
• Licences, registrations, continuing education
• Accountant or bookkeeper fees
• Bank fees and payment processing

Tally up your yearly total. It's almost always more than you expected.

Step 3: Billable vs non-billable hours

This is where most tradies get their rate badly wrong. They assume they'll bill 40 hours a week, 50 weeks a year. That's 2,000 billable hours. In reality, most self-employed tradies bill 1,200 to 1,500 hours a year. The rest of their time goes on quoting, travelling between jobs, buying materials, doing admin, chasing payments, and time off.

Be honest with yourself. Track a typical week. How many hours are you actually on the tools, earning money? That's your billable number. Multiply it by the number of working weeks (usually 46 to 48 after holidays and sick time).

Step 4: Profit margin

Your income goal is your wage. Your profit margin is separate. Profit is what lets your business grow, buy new tools without stressing, hire an apprentice, or get through a slow quarter. Add 10 to 20 percent on top of your total costs as profit.

Plenty of tradies skip this step and wonder why they can never get ahead. If you don't build profit into your rate, you're running the business at break-even, which means one bad month wipes you out.

A worked example

Let's do a UK plumber as an example. Income goal: £45,000. Overheads: £18,000. Profit margin: 15 percent. Billable hours: 1,400 per year.

Subtotal: £45,000 + £18,000 = £63,000. Add 15 percent profit: £72,450. Divide by 1,400 billable hours: £51.75 per hour.

That's the minimum rate this plumber needs to charge to hit their goals. If they're charging £35 per hour because a mate told them to, they're working at a loss against their own targets and don't realise it.

Regional adjustments

The formula is the same everywhere. The inputs change. A plumber in London has higher overheads and a higher income goal than one in a small town. Their hourly rate will naturally be higher. Don't try to match London rates in a rural area, and don't try to survive on rural rates in a city.

Run the formula with your real numbers. The output tells you what you need to charge in your specific situation, not what the industry average says.

Sanity check your answer

Once you have your number, check it against local market rates. If your calculated rate is far above what competitors charge, something in your inputs is probably off. Either your overheads are too high (cut them), your billable hours are too low (increase them), or your income goal is unrealistic for your area.

If your rate is below local market rates, that's free money. Raise your price. Clients don't expect you to be the cheapest. They expect you to be professional.

Use a calculator to stop guessing

Running the numbers yourself on a napkin works. Running them through a free hourly rate calculator that does the maths for you is faster and less error-prone. It takes the inputs above and works out your hourly rate in seconds. You can tweak variables and see how they change your number, which makes decisions like 'should I take on more overhead?' or 'can I work fewer hours?' much clearer.

Once your rate is set, save it into one of the free quote templates so every job you quote uses the right number. QuoteGenio handles quotes and invoices for the mechanical and automotive trades and every other trade, with branded PDFs, WhatsApp send, and online acceptance built in.