What is the charge out hourly rate?

A few weeks ago I was browsing the internet for a bathroom renovation contractor. I landed on 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 on my project. Super quick and easy!

When I am browsing through websites like this, I always like to read any blogs or forums. So, I clicked on “Ask the Pros”. Sounds good, I was thinking, hoping that I will 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, were providing 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

For all those looking for some clarity on how to calculate the charge out rate, here is my take on it.

Let’s look at an example of a self-employed tradesperson. This is what we need to consider:

1. 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.
2. 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 employer, paid travel time, live out expenses, truck allowance, etc.
3. 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, associations fees, commercial liability insurance, worker safety compensation premiums, etc.
4. 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, along with 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 spendings, or perhaps your profit. Keeping track of what is included in your rate, it also gives you the power to control your spendings. If you spend more than you have allowed for in your rate, you will know where you exceeded your budget.

If you want to download the excel spreadsheet and calculate your charge-out rate, please fill in the form below. If you choose to use the template, please note that it is not intended to cover all possible scenarios. Please feel free to edit it as you will see fit. It is a good starting point though for all those looking for the answer to how to calculate a charge out rate.

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If you have any comments, or suggestions on how to improve the spreadsheet, please share them with us.