Free tool
What should I charge an hour
The rate that covers what you want to earn and what it costs to earn it.
Most sole traders set their rate by asking what the person down the road charges. That tells you what the market bears; it does not tell you whether the number works. This does the other calculation: what you need to charge for the year to add up.
The sum
Income target, plus superannuation, plus overheads, divided by the hours you can actually bill in a year.
That is it. The arithmetic is trivial and the inputs are where it gets interesting, because two of them are almost always wrong.
Billable hours is the input people get wrong
A 45 hour working week is not 45 billable hours. Quoting, invoicing, chasing payment, ordering materials, driving between jobs, cleaning the ute, doing the BAS and answering the phone are all real work and none of it is on an invoice.
For most sole trader trades the billable share of a full week lands somewhere between 20 and 30 hours. If you plug 40 into the calculator above you will get a rate that quietly loses money all year.
Halving the billable hours roughly doubles the rate you need. That is why an hourly rate that looks high next to an employee wage usually is not, and it is worth being able to explain that to a customer who asks.
Weeks worked is the other one
Fifty two weeks is not available. Take out four weeks of holiday, the public holidays, and some allowance for the weeks you lose to weather, illness or a quiet patch. Forty six is a realistic starting point and forty four is not pessimistic.
You do not get annual leave, sick leave or public holiday pay. Those come out of the rate or they do not happen.
Overheads add up faster than people expect
Public liability and professional indemnity insurance, income protection, vehicle running and depreciation, fuel, tools and their replacement, phone and internet, accounting and bookkeeping, licence and registration renewals, advertising, bank and payment fees, software, workwear, and a shed or yard if you have one.
Add them up honestly once a year. The figure is usually larger than the guess.
Superannuation
As a sole trader you are not required to pay yourself superannuation, and that is exactly why so many do not. It is still part of the cost of your labour, and leaving it out of the rate means the rate is subsidised by your retirement. The calculator includes it as a percentage of the income target so you can see what it costs to include.
Tax
The income figure above is before income tax. What you actually keep depends on your structure, your deductions and the rates for the year, and that is a question for an accountant rather than a web page.
GST sits on top of the rate rather than inside it if you are registered. The GST calculator handles that, and the job cost calculator shows what a quote at your rate looks like to the customer.
Then check it against the market
The rate this produces is a floor, not a price. If it comes out well above what your area pays, the answer is usually not to drop the rate but to look at the billable hours and the overheads, because one of those is where the problem is.
Common questions
How do I work out my hourly rate as a sole trader?
Add your income target, the superannuation you want to pay yourself and your annual overheads, then divide by the hours you can actually bill in a year. Billable hours, not hours worked. For most sole trader trades that is 20 to 30 hours a week over about 46 weeks.
How many hours a week can a tradesperson actually bill?
Usually 20 to 30 out of a 45 hour week. Quoting, invoicing, chasing payment, ordering materials, driving, cleaning up and paperwork are all unpaid. Assuming 40 billable hours is the single most common reason a rate that looked fine does not work over a year.
Should my rate include superannuation?
A sole trader is not required to pay themselves superannuation, which is why many do not. It is still part of what your labour costs, and leaving it out means the rate is being subsidised by your retirement. The calculator lets you see the difference including it makes.
Does this rate include GST?
No. It gives the rate before GST, and shows the GST inclusive equivalent alongside it. If you are registered for GST it goes on top of the rate rather than coming out of it.
My rate comes out higher than everyone else charges. What now?
The rate is a floor, and if it is well above the market the answer is usually not to drop it. Look at the two inputs that are most often wrong: the billable hours and the overheads. One of those is generally where the gap is.