What to charge per hour, worked out properly

Ask ten trades how they set their hourly rate and nine will tell you some version of the same thing: they asked around, found out what everyone else charges, and pitched themselves slightly under it.

That method has one obvious flaw. It assumes the people you asked worked theirs out properly — and they did the same thing you just did.

Start from what the business costs

Your rate has to cover three things, in this order:

• Everything it costs to keep the business open for a year
• The wage you want to take home
• Something left over, so the business survives a bad quarter

Add the first two together and you have the number you must recover. Divide it by the hours a customer will actually pay you for, and you have your break-even rate. Below that number, you are paying to work.

The part everyone gets wrong

It is not the costs. Most owners can list those reasonably well. It is the hours.

A fifty-hour week is rarely more than thirty billable hours. The other twenty go on quoting, driving between jobs, parts runs, chasing invoices, warranty callbacks, and the hour lost to a customer who was not home. None of that is billable, all of it is unavoidable, and every hour of it has to be paid for by the hours that are.

Divide your costs by fifty instead of thirty and your rate comes out roughly forty percent too low. That gap does not disappear. It comes out of your wage, quietly, for years.

Track it honestly for two weeks before you trust the number. Most owners are surprised, and the surprise is always in the same direction.

What to do when the number looks too high

It usually does, the first time. The instinct is to assume the calculation is wrong, because nobody locally charges that.

Consider the other explanation: they have not done this calculation either. An entire local market can be underpriced at once, and usually is, because everyone set their rate by looking at everyone else.

You do not have to jump straight to the number. But you should know what it is, because it tells you which jobs are worth taking and which quotes you should walk away from. Competing below your break-even rate is a race you win by going out of business first.

Work out yours

The break-even hourly rate calculator does the arithmetic. Overheads, the wage you want, and the hours you can genuinely bill. It takes about four minutes, and the last line — what happens if you lose five billable hours a week — is the one worth pinning up.