Establishing accurate charge out rates to achieve targeted profit for tradies

A common challenge for businesses that charges based on team members’ worked hours is to determine whether they are simply guessing at a reasonable charge out rate, or if there is a method to accurately calculate individual rates that will allow the business to achieve its target profit.

Based on my extensive accounting experience, we use proven methodologies to help tradies set their charge out rates effectively.

The composition of an effective charge out rate depends on a number of matters including:

Labour on costs. This relates to the extras that are paid to the team over and above the annual gross salary and the cost factor for absenteeism, whether it is leave or training or professional development time.

The gross annual salary/wages for each team member.

The working hours and expected productivity.

The overhead expenses for the business.

The quantum of expenditure on behalf of clients to purchase products to be installed in their premises.

A decision on the markup on the purchase of products for clients.

The targeted profit for the year.

All of these variable factors are combined and incorporated into a calculation to determine charge out rates for individual team members. At this stage, the rates can be validated by analysing the various components to ensure that the business will earn the targeted profit.

It is crucial to prepare monthly financial accounts, together with individual performance reports for each team member, to track any variations in work hours and the productivity percentages. If these changes appear to be ongoing, the charge out rate calculation should then be repeated, allowing the necessary adjustments to be made.

To find out more about how you can utilise this charge out rate for your business, contact Towers Business Development on 07 4724 1118 or email .