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How to calculate your hourly rate

If you’re in an industry sector where hourly rate is the cornerstone of how income is generated, it is important to consider the required hourly rate. It may be easy to price-check the competition, but don’t be sure they are charging correctly to the hours worked or business expenses.

When young tradies venture out to become their own boss, it is common that the projected income is a calculation or juggle of figures that may require clarification. Beware the mental calculation of the working week: 40 hours @ $60 per hour = $2400 per week x 52 weeks = $124,800 annual income – reality may be somewhat different.

Always allow for unproductive and un-chargeable time in the day. Business expenses and all other associated business costs must factor into the rate calculation. Days off work and downtime should always be considered and factored in.

Here is an example to assist with your hourly rate calculation.

Days per year 365
Weekend days 104
Scheduled public holidays 11 (may vary for each state/territory)
Personal holiday– 14 days (2 weeks) 14
Injury or sick day allowance 0 – if you have a medical condition, factor it in
Total working days = 365 – 129 236

Then

Year Month
Wages required $70,000 $5,833
Business expenses - $2,100 / month $25,200 $2,100
Total revenue required $95,200 per year $7,933 per month

Calculate hourly rate

Available hours @ 8 per day 236 x 8 1888 hours in a year; 95,200/1888 = $50.50 per hour
Actual chargeable 6.5 hours per day x 236 (18% leakage) 1534 hours in a year
Charge rate
$95,200/1534 hours (working 5 day week)
$62.05 per hour, every hour

Profit, depreciation etc must also be considered.

The Business Enterprise Centre is a community based not-for-profit organisation established to foster the growth of business within the Central West of NSW. We are managing agents for the NSW government Small Biz Connect Program, Australian Government ASBAS and NEIS program. To find out how we can assist your business contact the BEC on 63620448 or email info@becbiz.com.au