Working out charge out rates for your business

Date: 15th June 2017

We often get asked by professionals and tradespeople how to determine an appropriate rate for on-charging staff, or what to on-charge for their own time. Whether you’re a builder, plumber, painter, PR or advertising consultant, lawyer, or architect, it’s important to calculate all of the relevant expenses, both variable and fixed, so you know you have these costs covered.

Start by taking a cost-based approach. This will help determine the minimum rate you need to cover your overhead and variable costs.

Work out staff costs

This is not just your employee’s wage. Think about all other associated costs.

1. Work out profit required for staff member. If you’re not sure, come back to this later.

2. Work out overheads (fixed costs) to recover. Again, if you’re not sure you can come back to this later. But keep in mind that ideally you want to recover some of your overheads on each staff member otherwise you’ll end up losing money.

3. Although not strictly a fixed cost, remember to consider ACC levies, especially in industries such as construction where levies are significantly higher.

4. Work out how many hours the staff member is available to work each year. This is:

Hours worked per week

LESS time off each year:

Public holidays (usually 10 days for fulltime staff)

Holidays (usually 20 days)

Sick days (up to 5 days)

For a full-time employee working 40 hours per week and 8 hour per day, this will equate to 225/1800 day/hours of work available per year.

5. Work out non-chargeable time, such as paperwork and admin tasks, selling, non-chargeable customer support, eg, dealing with faults.

6. Taking into consideration all of the above factors will leave you with the minimum charge out rate you need to cover expenses.

Using an online tool

The easiest method for calculating the costs outlined above is using an online calculator tool such as this one provided by the Ministry of Business, Innovation and Employment:

Charge out rate calculator

Comparing the results with industry standards

If your final charge out rate calculated is below the industry standard, or what you are currently charging, that’s good news. You can be assured you are making money from this employee. If not, it may be time to review your costs and charge-out rate.

Need help?

We would be more than happy to sit down with you to work out staff costs, overheads, and look at industry standard rates. Please get in touch for a chat.

Posted in: Alexandra, Latest News, Queenstown, Wanaka