Labour Charge Out Rate Calculator

Labour Charge Out Rate Calculator

Calculation Summary

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How to Calculate Your Labour Charge Out Rate

Determining the correct labour charge out rate is critical for any service-based business, from trade contractors to consulting firms. If your rate is too low, you might cover your costs but fail to make a profit. If it's too high, you risk losing jobs to competitors.

The Components of a Charge Out Rate

A professional charge out rate is not just about the employee's salary. It must account for several distinct financial factors:

• Base Salary: The gross annual amount paid to the employee.
• Overheads: Fixed costs associated with employing someone. This includes workers' compensation, superannuation/401k, vehicle costs, tools, software licenses, rent, and insurance.
• Billable Efficiency: No employee is 100% billable. Time spent on meetings, training, and administration cannot be charged to clients. Most businesses target between 70% to 85% billable efficiency.
• Profit Margin: The percentage added on top of costs to allow the business to grow and reinvest.

The Formula Used

Our calculator uses the following mathematical logic to ensure business sustainability:

1. Total Annual Cost = Annual Salary + Annual Overheads
2. Total Annual Billable Hours = Weekly Billable Hours × Weeks Worked per Year
3. Break-Even Hourly Rate = Total Annual Cost ÷ Total Annual Billable Hours
4. Final Charge Out Rate = Break-Even Rate ÷ (1 – (Profit Margin / 100))

Example Calculation

Let's say you have an electrician with a $70,000 salary. Your overheads per tech are $15,000. They work 48 weeks a year and manage 32 billable hours per week. You want a 30% profit margin.

• Total Cost: $85,000
• Total Hours: 1,536 (32 hrs × 48 weeks)
• Break-Even: $55.34 per hour
• Charge Out Rate: $79.05 per hour (excluding tax)

Using this structured approach ensures you never work at a loss and provides a clear justification for your pricing strategy during client negotiations.

function calculateLabourRate() { var salary = parseFloat(document.getElementById('baseSalary').value); var overheads = parseFloat(document.getElementById('annualOverheads').value); var margin = parseFloat(document.getElementById('profitMargin').value); var billableHours = parseFloat(document.getElementById('billableHours').value); var weeks = parseFloat(document.getElementById('weeksWorked').value); if (isNaN(salary) || isNaN(overheads) || isNaN(margin) || isNaN(billableHours) || isNaN(weeks) || weeks <= 0 || billableHours = 100) { document.getElementById('chargeOutDisplay').innerHTML = "Margin must be less than 100%"; return; } var totalAnnualCost = salary + overheads; var totalBillableHoursYear = billableHours * weeks; var breakEvenRate = totalAnnualCost / totalBillableHoursYear; // Formula to achieve a specific margin on the sale price: Cost / (1 – Margin%) var finalRate = breakEvenRate / (1 – (margin / 100)); document.getElementById('breakEvenDisplay').innerHTML = "Break-even Hourly Cost: $" + breakEvenRate.toFixed(2) + ""; document.getElementById('chargeOutDisplay').innerHTML = "Recommended Charge Out Rate: $" + finalRate.toFixed(2) + " / hr"; } // Run calculation once on load window.onload = function() { calculateLabourRate(); };