What is the “charge out hourly rate”?
I was browsing the internet for a bathroom renovation contractor a few weeks ago. I landed on the www.TrustedPros.com website. Great site if you are looking to find contractors for your home. I shortlisted a few and sent out the invitation to submit a price for my project. Super quick and easy!
When I am browsing through websites like this, I always like to read blogs or forums. So, I clicked on “Ask the Pros”. Sounds good, I was thinking, hoping that I would find some advice on how to hire a contractor for a small project. Not so much advice for homeowners, but plenty of questions from contractors asking the pros. The question at the top of the page was:
What hourly rate would a 10 yr licensed Carpenter charge in Ottawa, Ontario? The answers were plenty, all of them but one provided suggestions on an actual rate. Only one answer suggested some reading material on how to determine the rate.
And this is the point I want to make in this article: the charge-out rate is the value that is determined based on each circumstance and purpose. We calculate the charge-out rate, research the market to find out if we are competitive and make any adjustments, if necessary. The charge-out rate is influenced by the market conditions, type of project, location, level of experience, etc.
How to calculate a charge-out rate
Here is my take on it for all those looking for clarity on calculating the charge-out rate.
Let’s look at an example of a self-employed tradesperson. This is what we need to consider:
- What is the base hourly rate for full-time employment currently offered by employers for your qualifications and experience? Consider researching the specific construction market you are operating in as a self-employed person. Rates vary from market to market and are affected by supply and demand.
- What benefits would not be included in the rate above but provided by an employer? These can be: extended health benefits, paid statutory holidays and vacation, disability and life insurance, any tools (individual trades need to cover the cost of a particular set of tools), any health and safety protecting gear, private pension contributions matched by the employer, paid travel time, live out expenses, truck allowance, etc.
- What other expenses do you have as self-employed and which are not included in the above two items: bookkeeping, tax filing, home office, training, union fees, association fees, commercial liability insurance, worker safety compensation premiums, etc.?
- Profit.
We need to remember that the hourly rate is also tied to the value we deliver within a particular hour, in other words, how efficient is our work. Consider giving your clients the total hours required to complete a project and your hourly rate. And, as a final touch, research the market to find the going rates.
Now that you have determined your rate, you can comfortably go back to your spreadsheet and make changes. You now have the knowledge of what numbers you want to adjust: any of your spending or perhaps your profit. Keeping track of what is included in your rate also gives you the power to control your spending. If you spend more than you have allowed for in your rate, you will know where you exceeded your budget.
If you have any comments or suggestions on how to improve the spreadsheet, please share them with us.
