How to price a job properly and actually recover your overheads

What actually counts as an overhead in a trade business

An overhead is any cost you carry whether or not you have work on. The ones people leave off the list are the expensive ones. Shed or yard rent, outgoings, power, water Vehicles: lease or depreciation, rego, insurance, servicing, tyres, fuel Insurances: public liability, tool cover, professional indemnity Tools, consumables, PPE, small plant, blades and bits Phones, internet, software Admin wages, including super Accountant, BAS and bookkeeping fees Licences, registrations, memberships, tickets and training Marketing, website, vehicle signage Bank and merchant fees, interest on the ute Tip fees and waste Your own unbillable time goes on that list too, at a real dollar figure, because it is the biggest hidden overhead in most small outfits. Quoting at nine at night costs you even though nobody invoices you for it. Software sits there like everything else, so you should know what it costs a month without opening a bill. Ours is public: StackLyft is 49 a month plus seats, ex GST.

Paid hours are not chargeable hours

This is where businesses quietly die. You pay a tradesperson for 38 hours a week, 52 weeks a year. That is 1,976 paid hours. You will never charge a client for 1,976 hours. Take four weeks annual leave, roughly ten public holidays and five sick days off the top and you are at about 45 weeks on the tools, or 1,710 hours. Then take out the hours nobody pays for: driving between jobs, the run back to the supplier because the fitting was wrong, loading and unloading, toolbox meetings, warranty callbacks, quoting, tidying the yard on a Friday. In most trades that is 20 to 25 per cent of the day. Call it 1,350 chargeable hours. That is 30 charged out of 38 paid, and 68 per cent of what you pay for across the year. Every overhead dollar has to come back across those 1,350, not the 1,976. Divide by the wrong number and you undercharge by about a third.

Working out the true cost of a chargeable hour

Four people: you, two qualified tradespeople and an apprentice. You are on the tools about 28 hours a week and in the office for the rest. Annual overheads, ex GST: Shed and outgoings $26,000 Three utes, all running costs $33,000 Fuel $21,000 Insurances 2,500 Tools, consumables, PPE $9,500 Phones and internet $3,600 Software $4,200 Part time bookkeeper $42,000 Your unbillable office time $26,000 Accountant and BAS $6,500 Licences and training $3,200 Marketing $4,000 Bank fees and interest $3,500 Tip fees and yard $2,800 Total 97,800. Chargeable hours: 1,350 each for the two tradespeople, 1,150 for the apprentice, 950 for you. That is 4,800. So 97,800 divided by 4,800 is $41.21 of overhead riding on every chargeable hour. Now the direct cost of a tradesperson on $42 an hour. Wages across 1,976 paid hours, $82,992. Super at 12 per cent, $9,959. Workers comp at 3 per cent, $2,490. Leave loading, ,117. That is $96,558, spread over 1,350 chargeable hours, or $71.52. Break even is $71.52 plus $41.21, so 12.73. For a 15 per cent net margin you charge 32.63. Call it 33. If you have been charging $95, you lose 7.73 every chargeable hour before you buy a fitting. Across 4,800 hours that is $85,000 a year. Use your own super and workers comp figures. The guarantee rate is set by the ATO and premiums differ by state and trade classification.

Markup is not margin, and 20 per cent markup is not 20 per cent margin

Markup measures against your cost. Margin measures against the price. Same dollars, different denominator, and the gap is wider than people expect. Put 20 per cent on 00 of cost and you sell at 20. Twenty dollars profit on a 20 sale is a 16.7 per cent margin, not 20. It gets worse the smaller you go: 10 per cent markup is a 9.1 per cent margin. Work backwards from the margin you want. Markup equals margin divided by one minus margin. 20 per cent margin needs 25 per cent markup 25 per cent margin needs 33.3 per cent markup 30 per cent margin needs 42.9 per cent markup 35 per cent margin needs 53.8 per cent markup "I'll add 10 per cent" is not a system. Ten per cent of what? On cost, that is a 9.1 per cent margin and one wet week eats the lot. A system is a rate that carries your overheads, a materials markup you can defend, and a margin target you write down.

Price materials so the trips to the supplier get paid for

Materials are not a pass through. The moment the order leaves the merchant it costs you. Someone drives there, someone loads it, it sits in the shed, offcuts go in the bin, a length gets damaged, then the fitting is wrong and there is a fourth trip. Take an $8,000 materials bill. Three supplier runs at 45 minutes each is 2.25 hours of a chargeable body at 33, so about $300. Five per cent waste is another $400. That is $700 of real cost before you count the shed it slept in. At 15 per cent markup you have ,200, so $500 is genuinely yours. At 25 per cent you have $2,000 and ,300 is yours. There is a cash flow cost too: you pay the merchant on 30 day terms and the client pays you at 45 if you are lucky. Set the markup by category, not one blanket number. Bulk items you buy well carry less. Small fittings and anything you have to chase carry more.

Variations: price them on the day or wear them

Every job grows. The problem is not the growth, it is that the growth goes unpriced because nobody wanted the conversation while the client was standing right there. Three rules. Write it down before you do the work, not at handover. Price it at your normal rate or higher, because a variation breaks your run, sends someone back to the supplier and pushes the next job right. Get it approved in a form you can produce later. An email counts. A nod in the driveway does not. The small stuff does the most damage. Half an hour here, a couple of fittings there, twelve times across a job, and by handover you have given away a day and a half. What you can claim and when sits under your contract and your state or territory's security of payment act. Those acts differ across the country and so do the notice periods, so read the one that applies to you, or ask your lawyer.

Quoting off last year's rates is quoting a loss

Copy the last quote, change the address, send it. Quick, and it is how you end up buying at today's prices with two year old money in the quote. Two things shift underneath you. Material prices, which have not moved evenly across categories, and your own overheads, which climb with rent, insurance and wages whether you noticed or not. So re-price your twenty most used line items every quarter against a current supplier price, not memory. Redo the overhead per chargeable hour sum once a year, and again after anything structural: a new ute, a new hire, a rent review. Put a validity period on the quote itself. Fourteen or thirty days is normal. Pick whichever matches how fast your suppliers move, and on long jobs get pricing confirmed in writing before you sign. When a client rings in four months saying you quoted this in March, the quote should already answer him.

Job costing is how you find out whether the price was right

All of the above is a guess until you check it against a finished job. Take that $8,000 materials job. You quoted 40 hours at 33 plus materials at 25 per cent markup: $5,320 and 0,000, a price of 5,320. At quote your cost was 2,509, so $2,811 profit and an 18.3 per cent margin. Actual: 47 hours, and materials landed at $8,600. Cost 3,898. Profit ,422. Margin 9.3 per cent. The price never changed. Seven hours did most of that. You cannot see any of it unless hours get booked to the job as they happen rather than reconstructed on a Sunday. Times on and off site, materials logged against the job when they are bought, variations attached to the job instead of sitting in an inbox. Then once a month, quoted against actual on every finished job. Look for the pattern, not the one shocker. If callbacks always blow out, your rate is fine and your scoping is not. If everything runs 15 per cent over, your rate is wrong. A spreadsheet does this, and so does a job management system.

Questions

What hourly rate should I be charging?

There is no national number. It falls out of your own overheads divided by your own chargeable hours, plus your labour cost and the margin you want. Two businesses in the same suburb, same trade, can land $30 apart and both be right.

Should I put my hourly rate on the quote?

Usually no. Quote a price for the scope. A visible hourly rate invites an argument about whether your rate is fair instead of whether the job is worth the money. Keep the rate build up internal and use it to check your own quotes.

How often should I redo the overhead calculation?

The full sum once a year, after your accountant finalises the figures. Material line items quarterly. Redo it straight away after anything structural: a hire, a departure, a new vehicle, a rent rise.

Do I mark up subcontractors like materials?

Mark them up, because you carry the coordination, the risk and the defects. The percentage is usually lower than materials because the dollars are bigger. Check your contract allows it, and check the payment terms in your state's security of payment act.