Are Your Tradie Clients Charging Enough For Profit?
Accountants Minute 466
For many trades businesses, one of the most important questions is also one of the most difficult to answer:
Are our charge-out rates actually sufficient to generate the profit we want?
Trades businesses are one of the largest groups of Australian businesses that rely on charge-out rates for the services they provide. Yet many business owners still establish their rates by looking at competitors, applying a standard industry rate, or simply increasing last year's prices.
This can result in charge-out rates that do not reflect the actual economics of the business.
For accountants, bookkeepers and business advisors, this creates an excellent opportunity to provide a practical advisory service to trades clients.
Price Is Important – But It Is Not Everything
Customers are naturally concerned about price, but the hourly rate is rarely the only factor considered when selecting a tradesperson.
Astute customers will also consider:
✅ Reliability
✅ Quality of workmanship
✅ Technical and backup services
✅ Reputation
✅ Punctuality – turning up on time!
✅ Tidiness
✅ Location
✅ Guarantees
✅ Refund policies
A trades business that performs strongly in these areas may be able to justify a higher charge-out rate than a competitor competing primarily on price.
This is an important discussion to have with your client before simply calculating an hourly rate.
What Should the Charge-Out Rate Be Based On?
The starting point should be the profit the business owner wants to achieve for the year.
This might be based on the estimated value of the business and a targeted return on investment, or it could be an agreed monetary profit target.
Importantly, the targeted profit should be in addition to an appropriate salary for the owner for their role as a key leadership team member of the business.
Once the profit target has been established, the calculation should consider the actual dynamics of the trades business, including:
✅ Salary or wages for each team member or employment category
✅ Labour on-costs
✅ Total paid hours for the year
✅ Annual leave and other leave entitlements
✅ Training and professional development
✅ Networking and other non-chargeable activities
✅ Expected productivity percentage
✅ Resulting chargeable hours
✅ Budgeted overhead expenses
✅ Targeted profit
The estimated productivity percentage is particularly important.
A team member might be paid for approximately 38 hours each week, but this does not mean the business can invoice customers for all of those hours.
The calculation needs to identify the realistic number of chargeable hours available to generate revenue.
Don't Forget Overheads and External Purchases
A budget of overhead expenses should also be prepared and regularly reviewed throughout the year.
Many trades businesses also purchase materials and other products on behalf of their customers.
The markup earned on these purchases can be incorporated into the overall calculation. Depending on the business's strategy, this additional margin could contribute directly to profit or be used to partly subsidise the required labour charge-out rates.
The objective is to look at the whole business, rather than simply calculating an hourly labour rate in isolation.
Proving That the Numbers Work
A properly structured charge-out rate calculation should produce an overall proof summary showing:
Projected revenue – labour and labour on-costs – overhead expenses + contribution from markups (as per owner/business manager’s decision) = targeted profit
This gives the business owner confidence that, provided the assumptions and productivity targets are achieved, the charge-out rates should generate the desired financial result.
For each team member or employment category, the client should also be able to see the key assumptions, including salary or wages, labour on-costs, paid working hours, leave and training time, networking hours, productivity, calculated charge-out rate and projected annual income.
This transforms charge-out rate setting from guesswork into a structured financial management process.
The Calculation Should Not End There
One of the most important parts of the process is monthly monitoring.
Actual hours worked and productivity should be compared with the assumptions used when the charge-out rates were originally calculated.
For example, if a team member was expected to achieve 75% productivity but is consistently achieving only 65%, the original charge-out rate may no longer be sufficient to generate the targeted profit.
The accountant, bookkeeper or business advisor can identify this early and prepare a revised calculation.
Where appropriate, the business can then adjust its rates for future unquoted work.
This is far better than discovering the problem after the end of the financial year, when it is too late to recover the potential lost revenue.
An Opportunity to Deliver Proactive Advisory Services
This is where accountants and bookkeepers can demonstrate that their value extends well beyond taxation and compliance.
Rather than telling a trades client several months after year-end that their profit was lower than expected, you can help them establish the financial targets, calculate appropriate charge-out rates and monitor performance throughout the year.
That is proactive business advisory work.
ESS BIZTOOLS has developed a Trades Charge-Out Calculator to demonstrate how this process can be applied.
The calculator enables you to work through the key variables for individual team members or employment categories and calculate charge-out rates designed to generate the client's targeted profit.
We are pleased to offer you a complimentary copy of the completed Trades Charge-Out Rate Calculator, developed by ESS BIZTOOLS, providing a practical example of the type of report you could prepare for your trades clients.
25% Off – Limited Time Promotion
From 10 August 2026, ESS BIZTOOLS is offering 25% OFF selected annual packages for a limited time.
FIND OUT MORE AND SUBSCRIBE HERE
Find out more and subscribe to SME Debtors Management System here
Could One Trades Client Pay for Your Subscription?
How many trades clients could benefit from proactive advice on setting charge-out rates to achieve their targeted profit?
Using the ESS BIZTOOLS Trades Industry Charge-Out Rates Calculator, we estimate an initial advisory engagement could generate $1,000–$3,000 plus GST per client.
Your investment? Just $189.75 for 12 months' access if you subscribe with our 25% off promotion.
The Opportunity Goes Further
The calculator can also support an ongoing monthly or quarterly advisory service. Your firm could monitor:
✅ Actual versus targeted team productivity
✅ The financial impact of lower productivity
✅ Cash flow and debtors performance
✅ Updated charge-out rates to reduce profit leakage
This helps clients correct problems during the year rather than discovering them after year-end.
A comprehensive ongoing service could potentially generate $1,000 or more per month, depending on scope.
A $189.75 investment could open the door to significant recurring advisory revenue.
FIND OUT MORE AND SUBSCRIBE HERE
The Question to Ask Your Trades Clients
The next time you speak with a trades client, consider asking them:
“How do you know that the charge-out rates you are currently using will generate the profit you want this year?”
If they cannot confidently answer that question, you may have identified an immediate opportunity to provide a valuable advisory service.
Want to know more?
Visit www.essbiztools.com.au.
If you would like to have a discussion about how this concept of virtual CFO services can be supplied by Australian accounting firms please ring our Managing Director, Peter Towers, on 0418 190 181 and we will arrange a complimentary 30-minute Zoom meeting to discuss your firm’s position and to give you our advice.
We believe that this is the blueprint for the delivery of an enhanced range of services by Australian Accounting and Bookkeeping firms to assist SME businesses to add value to their businesses and to assist accountants and bookkeepers not only to attract but to retain outstanding talent who want to be involved in the delivery of “real accounting services”.
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