Charge out rates crucial for profitability

Using a “Charge out Rate Calculator” is important for tradie and manufacturing businesses, to get the individual charge out rates for each team member at an amount, which will enable the business to achieve its targeted profitability.

There are a number of components in ensuring that the business will trade at the targeted profit including:

• Labour on costs – covering annual leave, shift worker allowance, training, apprenticeship training , holiday pay loading, statutory holidays, payroll tax.

• Labour cost – salary – working hours – budgeted productivity percentage.

• Budgeted overhead expenses

• Estimate of materials to be purchased for clients and the mark-up percentage on those purchases.

• Targeted profit

• Proof sheet on the team’s projected performance and the profit to be generated.

• Is this profitability target what you want to achieve?

Once you have established the charge out rate, it is important to monitor the actual hours being charged clients on a weekly/monthly basis.

Each month, the profit and loss account should be produced together with a summary of KPIs, so that a decision can be made as to whether to vary charge out rates for some or all of the team members because of non-achievement of the budgeted profit target for the month.

A similar approach has been developed by our associated company, ESS BIZTOOLS, which we utilise at Towers Business Development, including “Charge out Rates for Professional Service Firms”. As well as “Setting Retail/Wholesale Business Prices”, based on the mix of stock at various mark-up levels to determine the mix that will generate the targeted profit for the business.

Towers Business Development assists businesses situated all over Australia to get the mix right to generate the targeted profit.

To find out more, visit our website – www.towersbusiness.com.au. We can also arrange a no-obligation discussion with Peter Towers, Managing Director of Towers Business Development, on the services that we can offer to assist your business. Call us on 1800 232 088 or send us an email at .