How to work out your charge-out rate

An employee on $38 an hour does not cost $38 an hour. Add holiday pay, public holidays, sick leave, KiwiSaver, ACC, protective gear, tools, training and non-productive time. That total, divided by the hours actually charged out, is your loaded internal labour cost per hour. Every honest costing decision starts here.

Take your annualised operating expenses from your profit & loss, then remove the costs that are charged directly to jobs — subcontractors, materials and any account you already recover job by job. What remains is the overhead the business has to carry regardless of which job is on: vehicles, insurance, rent, admin wages, software, accounting, compliance, marketing.

This is where most rates go wrong. Paid hours include quoting, travel, training, wet days and admin. Only productive hours are chargeable. Dividing recoverable operating cost by productive hours gives your break-even hourly rate — the rate at which the business makes nothing but loses nothing.

Break-even is not a price. Apply the markup your business needs for profit, risk and reinvestment to arrive at a target rate. A 30% markup on a $52 break-even rate is roughly $68 an hour, before GST.

Recoverable operating cost of $499,000 a year across 9,600 productive hours is a break-even rate of about $52 an hour. At a 30% target markup, the target charge-out rate is about $68 an hour. Quote below that and the job is subsidising itself; quote above it and you know exactly how much room you have.

MARGIN takes your profit & loss figures and your settings — wages, productive hours, target markup — and calculates the break-even and target rate deterministically, showing every input. It never invents a market rate: where published New Zealand rate information is available it is shown as supporting evidence with its sources, and where it isn't, MARGIN says so rather than guessing.

Once the rate is set, job costing tells you whether reality matched the plan.