Why your charge-out rate is probably too low
If you've had a flat-out year and still finished with nothing much in the bank, your charge-out rate is the first place I'd look. Not your workload. Not your suppliers. The rate.
Most builders set it the same way: take the hourly rate you pay someone, add a bit on top, round it to a number that feels defensible. It seems sensible enough. It's also how you end up working twelve months for very little.
I built a rate card for a building client recently. Four people on the tools. The rates on their payslips sit between $31 and $39 an hour. What those same people actually cost the business is between $46 and $65.
Across four staff, that gap came to $127,440 a year.
Here's how we got to those numbers.
Step one: work out which costs actually belong to jobs
Before you can price anything properly, you need to know what a job really costs. Most building businesses have costs sitting in overheads that belong on jobs:
Site labour
Vehicles
Software you only use on jobs, like HazardCo, WunderBuild or Buildertrend
WorkCover for anyone who only works on site
Until those move across, both of your numbers are lying to you. Overheads look bloated and jobs look more profitable than they really are.
Step two: work out who is actually on the tools
Which of your people are site-only, and for anyone splitting their week between site and the office, how many of those hours genuinely go to jobs. You're not guessing, you're just being honest about where the time goes.
Step three: work out realistic hours, which is the bit almost everyone skips
Nobody works 38 hours a week, 52 weeks a year. On paper that's 1,976 hours. Here's what it looked like for this client once we took out the time nobody is on site:
Nominal hours (38 x 52): 1,976
Less annual leave: 152
Less public holidays: 91
Less sick leave: 76
Recoverable hours: 1,657
That's 319 hours a year, per person, that you are paying for and cannot sell. If your team is on an EBA with RDOs, it's less again.
This step quietly does the most damage. Spread that same person's cost over 1,976 hours instead of 1,657 and your rate comes out 16% too low, before you've made a single other mistake.
Step four: build the true cost for each person
Now take the rate you actually pay and add everything else that attaches to that person. Here's how it stacked up for a Level 3 carpenter. This builder pays above award, which plenty of good builders do to hold on to good people, and it makes getting the rest of this right matter more, not less:
Hourly rate paid: $37.46
Industry allowance: $1.41
Tool allowance: $1.08
Travel allowance: $2.80
Superannuation: $5.13
Leave loading: $0.60
Overtime (2 hours a week): $3.07
WorkCover: $1.35
Portable long service leave: $1.21
True cost per hour: $54.11
His payslip says $37.46. The real number is $54.11. That is 44% more, and that is before he has driven anywhere.
The gap gets wider for anyone with a work car. One of the Level 5 team members on this card is paid $39.10 an hour. Once his vehicle and phone are loaded in, he costs $65.48. That is 67% above the number most people would price off.
Across the four of them, the difference between what they are paid and what they truly cost was $127,440 a year. That is the money that quietly disappears when a business prices off the wrong number.
Step five: make sure your overheads actually come back
Your rate now covers your people. It still doesn't cover rent, admin wages, insurance, accounting, software, or the hours you spend quoting and running the business. Those have to be paid for out of the jobs too.
So we take the overheads left over after step one, forecast how many jobs the business will run this year, and give each job a share to carry. Not evenly, though. A full build carries more than a deck, so we weight it across the mix of work you actually do: full builds, knock-down rebuilds, renovations, decks.
Your client never sees it as a line on the quote. But it's in there, and it means the business is being paid for existing.
And then, finally, margin
This is the part that catches people out. Most builders believe they're making 20% on a job. What's actually happening is that they're recovering their overheads and calling whatever's left profit.
Once your overheads are genuinely built into the price, anything on top is real margin. Money that stays in the business. That's the difference between being busy and being profitable, and it's usually the whole ballgame.
Where to start
You don't have to do all of this in one sitting. Start with step three, because it's the quickest. Work out how many hours your people are genuinely on site once leave, public holidays and sick days come out. If you've been pricing off 1,976 hours, you already know your rate is short.
If you'd like a hand building the whole thing, book a free 30-minute call. Bring one job you're not sure made money and we'll look at it together.
A couple of questions I get asked
How often should I review my rate?
Once a year as a minimum, and any time wages move, whether that is the annual award increase in July, a pay rise, or a change to an allowance. A rate card that is two years old is a rate card that is losing you money.
What if my rate comes out higher than everyone else's?
Then you know something your competitors don't, which is what it genuinely costs to do the work. Some of them are pricing below cost without realising it. Winning a job you lose money on isn't winning.