"How much should I charge?" is one of the first questions every tradie asks when they go out on their own. Most people answer it by asking a mate or checking what everyone else in town charges.
Here's what nobody tells you. What others charge tells you about the market. It doesn't tell you what your business needs. For that, you need your daily income target: the amount the business has to bring in every working day to pay you, pay the bills and put money aside. Work that out first, then set your rate from there.
What is a daily income target?
It's one number: what your business needs to earn on every working day. Not what you hope to earn. What it needs. Once you know it, you can price a job, check a quote and know by Friday whether the week covered itself.
Step 1: Add up what you need to live
Start at home, not with the business. What does your household need from the business each year? The mortgage or rent, food, bills, the car, the kids and a bit of fun. If you want to put money into your own super, and it's worth thinking about, add that too.
Step 2: Add what the business costs to run
Next, everything the business spends in a year, whether there's work or not: the vehicle and fuel, insurance, tools and repairs, licences, phone, software, your accountant and advertising. Most people leave things off this list, so go through your bank statements, not your memory.
Step 3: Add tax and a buffer
Tax doesn't come out of your pay any more, so it has to come out of your rate. Your accountant can tell you how much to allow. Then add a buffer for slow months, late payers and the day the ute needs a new gearbox.
Step 4: Count the days you'll actually bill
This is where most rates fall over. There are 52 weeks in a year, but you won't bill all of them. Take out holidays, public holidays, sick days, rain days and training. Then take out the time spent quoting, ordering, invoicing and driving. That's all work, but nobody pays you for it directly.
Step 5: Do the sum
Add Steps 1 to 3 together and divide by your billable days. That's your daily income target. Divide it by the hours you'll bill each day and you have the lowest hourly rate that keeps the business afloat.
Here's an example with made-up round numbers. It isn't what you should charge. It just shows how the sum works.
What you need to live: $85,000
Business running costs: $35,000
Tax and buffer: $30,000
Total: $150,000
Billable days: 260 weekdays, less 20 days' holiday, 10 public holidays, 10 sick and rain days, and 20 days of quoting and admin, leaves 200 days
Daily income target: $150,000 ÷ 200 = $750
At seven billable hours a day: about $107 an hour
If you're registered for GST, these figures are before GST. GST goes on top, and it isn't yours to keep.
Charge like a business, not a favour
Once you know your number, the leaks show up. The half hour you don't bill. Mates rates. Rounding seven and a half hours down to seven. Quoting low to win the job, then working weekends to make up for it. Each one feels small. Over a year, they're the difference between a business that pays you and a very busy year with nothing to show for it.
Then check it against the market
Your daily income target is your floor, not your ceiling. Now look at what others charge for similar work in your area. If the market sits above your floor, good. If it sits below, don't just drop your price. Look again at your costs, your billable days and the kind of work you go after, and test it with your accountant.
Do it before you hand in your notice
If you haven't gone out on your own yet, start with what to sort before the ABN, then work out this number before you resign. If the numbers don't work on paper, they won't work on the tools. Starting with your partner? Do it together, because this is the number the household will be relying on.
Already running your own business? Do it this week. It's never too late to know your number.
It's not hard. It's just new.
Your daily income target is part of Stage 3 of Nobody Tells You This Stuff: A Practical Guide to Setting Up Your Business. The worksheets walk you through every number in order: your household money, an emergency fund, start-up and running costs, how you'll fund them, and the income the business needs. It covers ten stages, in two versions: Starting on Your Own, and Starting Together for couples. It's $375 inc GST, one-off, and Australian buyers also get a 20 minute one-on-one with Alexandra.
Frequently asked questions
What is a daily income target for a tradie?
It's the amount your business needs to bring in on every working day to pay you, cover running costs and set money aside for tax and slow times. You work it out by adding those up for the year and dividing by the days you'll actually bill. It's the number to know before you set your rates.
How do I work out my charge out rate?
Start with your daily income target and divide it by the hours you'll bill each day. That gives you the lowest hourly rate that keeps the business afloat. Then compare it with what others charge for similar work in your area, and talk it through with your accountant before you lock it in.
Should my daily income target include GST?
No. If you're registered for GST, work out your target before GST, then add GST on top when you quote and invoice. The GST you collect goes to the ATO, so it was never yours to spend. Check the current rules with your accountant.
This post is general information only, not tax, legal or financial advice. Talk to your accountant about your situation.