How much should you pay and charge?

This is important, isn’t it? 

I know there are no real rules to either of these things and I also know that you face upward pressure from your tradespeople to pay them more and downward pressure from your customers to charge them less.

So, if you get this wrong or if you submit to the pressure, you can end up paying your people more and charging your customers less and not having much left over to run your business on. I’m talking about not having enough margin to run a healthy business as well as decent cash flow, and enough spare to absorb the mistakes, the rainy days, the bad debts (and everything else) and still make a profit.

That’s bad, right?

So it’s important to charge enough and not pay too much so you have decent margins to run your business on.

But how much is that?

How do you know if you’re paying your people too much? Or if you’re paying them enough so they don’t all leave for other jobs that pay more.

Let’s focus on how much to pay them first. How much to charge kind of follows from that.

I can’t give you a definitive answer, I’m afraid – there isn’t one. It’s not like there are rules. Well, there are – there’s an award for each trade. So you’ve got to pay at least the award.

But is that enough? I’m not sure it’s a good idea to wait until one of your people approaches you and says, “I want a pay rise” or “I’ve been offered a job at $x ph, what can you do?” You’re already on the back foot, aren’t you?

I’ve done some research to get you started and I’ll put a line in the sand, again to get you started. Don’t fight me on the numbers, it’s just a start.

I spoke to my clients and did some research on SEEK – looked at job ads that mentioned pay ranges.

So my clients are paying $40 – $45 ph for an experienced tradesperson and a little bit more if they’re particularly good or in other ways, valuable.

More if they’re a team leader, $50 ph or so for a project manager.

(For apprentices, the award is fine – nobody is poaching an apprentice by offering bigger pay, so we’ll stick to tradespeople.)

I did it little bit of research on SEEK, as I said. I searched plumber.

(These were all advertising for employment so paid as F/T employees with super on top and paid holidays and sick days, not as subcontract or casual or any of that bullshit.)

The hourly rates ranged from $32 to $50 ph. I saw one with a range from $40-$80!

And a construction plumber with a range of $120k-$150k per year, which is $50.40 – $60 ph. (I’m rounding).

So you’re between $35-60 ph depending on experience and how valuable they are to you.

Now, have a think about how good it is to work for your business.

The business paying top dollar will be the big building sites in the city, with a long commute and more pressure and stress, so understand that you don’t have to pay as much as they pay if your place is a lovely place to work with no commute and a 9-day fortnight and a great culture…

I hope that helps – around $42 ph is where I’d start.

Now, how much to charge? You’re going to hate me but grab my Tradie Cost Calculator because how much to pay them per hour is not what they cost you for every hour you get to charge them out.

Bear with me.

You pay them the hourly rate of 38 hours a week for 52 weeks a year.

But they’re not working charged to a job for that whole time, are they? You pay them 20 days holiday and 10 days sick and 9 public holidays – when they’re not being charged for a job.

And there’s a part of each day or week that they’re not working, too.

There’s smoko, safety briefings, toolbox talks, talking to clients, talking shit, running off to suppliers to pick something up and even driving between jobs or picking up keys.

The tool lets you enter the rate you pay them and the holidays they get, you pick an efficiency rate which is what allows for those non-working hours I was just telling you about and it calculates what they cost you for every hour they’re charged to a job – which is what correlates to your charge-out rate isn’t it?

So get the tool (comment or reply Tradie Cost and we’ll send it over) and work out what your people cost you. You can put them all in there and it can accommodate subcontractors and casuals.

Then you need to add your margin to calculate your charge-out rate. You should be aiming for a margin of 30% or 35% at least.

So divide the cost the calculator gave you by 0.7 or 0.65.

(That’s how you calculate gross margin).

Now you have a charge-out rate.

If you have an employee on $40 ph, their cost to you if they’re 80% efficient, is $67 ph. 80% is pretty good – someone on site all day long will be 80%. Someone who drives between jobs will be 65 or 70%.

If you divide 67 by 0.7, you get $95.71 – so you need to be charging $96 ph!

More than you thought?

A few more thoughts before I go:

  • Calculate the average of your people and a single charge-out rate.
  • Don’t charge differently for your apprentices!
  • Don’t charge by the hour either, use your rate to calculate a flat rate price list that you use to build your quotes – a rates sheet if you like.
  • And the last one – look around at what your competitors are charging and be similar to the ones who are as good as you are (always be comparing). 

Grab the tool and calculate your rates.

My clients compare notes on rates so why don’t you join my program and you can do the same?

(A big part of this is about helping you be braver or more confident about what to charge).

There are four ways you can engage with me:

1. Subscribe to these emails and get them once a week in your inbox so you never miss a video from me.

2. Join the Trades Business Toolshed Facebook Group where you can watch these videos, ask me questions or talk to your peers.

3. Attend my next Tradie Profit Webinar.

4. Book yourself a 10-minute chat with me. We’ll talk about whether coaching is right for you now and if it is, we’ll go further into the process before you have to make your mind up.

See you later.

Click here to book a money maker call with Jon.