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Ok, many people come here and ask what they should be charging and how to work it out. I've been looking through my library and here is an excerpt from a book I found called 'The right way to start your own business'.
I have added some extra bits in there. I hope it's helpful to all those that ask what to charge
A General Trade
This sort of calculation applies in any situation where the customer will be supplied with labour and materials. The hourly rate that can be charged will depend on the general charges made in the locality.
A very good rule is that the labour charges should provide as a minimum the amount needed to meet all the costs of the business plus a minimum profit. Then any profit made on the supply of materials is a bonus. The reason for adopting this approach is that it is conceivable (if not probable) that the tradesman will pick up a run of business where all materials are supplied.
In this case, we shall be working as follows:
Fixed costs
Workshop Rent =3,600
General Insurance =740
Vehicle Tax and Insurance =540
Total =4,880
Overhead Costs:
Telephone =920
Travelling Costs =3,700
Stationary =350
Postage =350
Bank Charges =575
Accountant =600
Total =6,454
Now if the minimum we need to earn is say £15,000 a year, we add this figure to the totals above, however let's not forget we'll be taxed. So £15,000 is what we want to 'take home' after tax. We need to know the figure before a 20% deduction. A good rule of thumb is that Monday's you work for the tax man. Tuesday to Friday, you work for yourself.
Therefore we need to add 25%
15,000 * 1.25 = 18,750
Now we add all those figures together:
Fixed Costs =4,880
Overhead Costs =6,454
Earnings =18,750
Total =30,084
Our minimum hourly rate is the above figure divided by the number of actual hours work we can charge out in 12 months. For a start, we shall need time to collect materials, drive to the work place, look at work in order to provide estimates and a good deal of general running about – none of which can be charged to the customer. If we manage to achieve 30 hours charged work a week, we shall be doing quite well. Based on, say, 48 working weeks (two weeks holiday plus various bank holidays and an allowance for a few days' sickness) that means we can charge 1,440 hours per annum.
30,084/1,440 = £20.89 call it £21.
The question we have to ask is quite simple. Is this a reasonable rate for this trade in your area? You may well find that the rate charged locally in the trade you are considering is nearer £18 per hour – which is why so many tradesmen working on their own offer some sort of specialty which moves them from this category to a specialist trade.
Note:
Figures used are made up ones
I have added some extra bits in there. I hope it's helpful to all those that ask what to charge
A General Trade
This sort of calculation applies in any situation where the customer will be supplied with labour and materials. The hourly rate that can be charged will depend on the general charges made in the locality.
A very good rule is that the labour charges should provide as a minimum the amount needed to meet all the costs of the business plus a minimum profit. Then any profit made on the supply of materials is a bonus. The reason for adopting this approach is that it is conceivable (if not probable) that the tradesman will pick up a run of business where all materials are supplied.
In this case, we shall be working as follows:
Fixed costs
Workshop Rent =3,600
General Insurance =740
Vehicle Tax and Insurance =540
Total =4,880
Overhead Costs:
Telephone =920
Travelling Costs =3,700
Stationary =350
Postage =350
Bank Charges =575
Accountant =600
Total =6,454
Now if the minimum we need to earn is say £15,000 a year, we add this figure to the totals above, however let's not forget we'll be taxed. So £15,000 is what we want to 'take home' after tax. We need to know the figure before a 20% deduction. A good rule of thumb is that Monday's you work for the tax man. Tuesday to Friday, you work for yourself.
Therefore we need to add 25%
15,000 * 1.25 = 18,750
Now we add all those figures together:
Fixed Costs =4,880
Overhead Costs =6,454
Earnings =18,750
Total =30,084
Our minimum hourly rate is the above figure divided by the number of actual hours work we can charge out in 12 months. For a start, we shall need time to collect materials, drive to the work place, look at work in order to provide estimates and a good deal of general running about – none of which can be charged to the customer. If we manage to achieve 30 hours charged work a week, we shall be doing quite well. Based on, say, 48 working weeks (two weeks holiday plus various bank holidays and an allowance for a few days' sickness) that means we can charge 1,440 hours per annum.
30,084/1,440 = £20.89 call it £21.
The question we have to ask is quite simple. Is this a reasonable rate for this trade in your area? You may well find that the rate charged locally in the trade you are considering is nearer £18 per hour – which is why so many tradesmen working on their own offer some sort of specialty which moves them from this category to a specialist trade.
Note:
Figures used are made up ones
