The formula
Hourly rate = (income you want + business costs) ÷ billable hours a year
Income is what you want to earn before tax. Business costs are everything the business pays for. Billable hours are the hours you can charge a customer for, which is far fewer than the hours you work.
Step 1: your business costs
| Cost | Example a year |
|---|---|
| Van: finance, fuel, insurance, servicing | £7,000 |
| Tools and replacements | £1,500 |
| Public liability and other insurance | £600 |
| Phone, software and accountant | £1,800 |
| Training, scheme fees and memberships | £1,100 |
| Total | £12,000 |
Step 2: your billable hours
- Start with 52 weeks.
- Take off holidays and bank holidays: about 5.6 weeks for the 28 days most employees get.
- Take off a week or two for sickness and quiet spells. That leaves about 45 weeks.
- Take off time you can't bill: quoting, travel, buying materials, paperwork. Many trades bill about 6 of every 8 hours worked.
- 45 weeks × 5 days × 6 billable hours = 1,350 hours a year.
Step 3: the worked example
(£45,000 + £12,000) ÷ 1,350 hours = £42.22 an hour
A day rate is that hourly rate times your billable hours in a day, so about £253 for a six-hour billable day, which you'd round to £250 to £260. Then check it against the local market. If it's well above what customers pay locally, look at your costs and your unbilled time before cutting the rate.
Do it in DripLess
Less paperwork, more paid work.
DripLess tracks hours against each job, so you can see whether your rate is actually covering your time, and turn those hours into invoices.
Questions
How do you work out an hourly rate if you're self-employed?
Add the income you want before tax to your yearly business costs, and divide by the hours you can actually bill a customer for in a year, after holidays, quiet spells, travel, quoting and paperwork.
What is a good hourly rate for a tradesman in the UK?
It varies by trade and region, with London highest. Work out the rate your own costs and hours need first, then compare it with what local customers pay.
Should I charge by the hour or by the job?
Pricing by the job usually suits jobs you can measure and protects you if you're quick. Hourly or day rates suit work with unknowns, such as repairs and fault finding.
Does my hourly rate include materials?
No. Charge materials separately, usually with a markup to cover the time and risk of buying them.