Working Out What Your Hour Is Worth

Why competitor pricing fails

Everybody sets their rate by reference to everybody else, which means nobody calculated it.

A local market can sit collectively below what the work costs to deliver, because each business anchored to a figure that was itself an estimate of somebody else's estimate.

Competitor rates are useful as a sanity check at the end. They are a poor starting point, because they tell you what others charge rather than what you need.

The billable hours problem

The largest error, and it is arithmetic rather than judgement.

A year has roughly two thousand working hours before any time off. Subtract holidays, statutory days, and illness, and the figure drops.

Then subtract everything that is not billable: quoting, travel between jobs, invoicing and chasing payment, buying materials, maintaining equipment, marketing, answering enquiries that go nowhere, and administration.

For most trades and consultancies, billable hours land somewhere well below the notional working year, frequently around half to two thirds of it.

Which means a rate calculated by dividing a target income by two thousand hours produces a figure that falls short by a substantial margin, because you will never bill two thousand hours.

The calculation

1. What you need to earn, personally, before tax.
2. Plus overhead, meaning everything the business spends whether or not you work: vehicle, insurance, tools, software, phone, premises, accounting.
3. Plus a margin, for equipment replacement, slow periods, and the business having a reason to exist beyond paying you.
4. Divided by realistic billable hours, not notional working hours.

That produces the rate the business needs to charge to work.

Most people running it for the first time find the number higher than what they charge, which is the useful outcome even where they do not immediately change anything.

The overhead people forget

• Your own time off, which nobody pays for.
• Equipment replacement, amortised rather than treated as an occasional shock.
• Insurance, in all its forms.
• Training and certification renewal.
• Bad debt, which is a real annual percentage.
• The quiet season, which the busy season has to fund.
• Payment processing fees, which apply to everything.

The quiet season is the one most frequently ignored. A business with four slow months has to earn its annual requirement in eight, which changes the rate considerably.

Rate against price

A distinction worth holding.

The hourly rate is an internal figure that tells you whether a job is worth taking. It does not have to be what you quote.

Most customers respond better to a job price than to an hourly rate, because a rate invites scrutiny of how long something takes while a price is judged against the outcome.

Quoting a job price calculated from your rate gives you both: an internally sound figure and an externally sensible presentation.

It also means efficiency benefits you. A business quoting hourly is penalised for getting faster, which is a poor incentive.

Raising it

The practical difficulty once the calculation shows the rate is too low.

New customers first, which lets you test the figure without risking existing relationships. If enquiries continue at the new rate, it was viable.

Existing customers with notice, and without extensive justification. A short message stating that rates are changing from a date is better received than a defensive explanation.

Some will leave. That is the expected outcome and frequently a positive one, since the customers most sensitive to price are usually the ones consuming the most time.

Doing it in stages rather than in one move is easier to sustain, though it delays reaching a viable figure.

Checking it against reality

The calculation is a starting point rather than an answer.

If the resulting rate is far above what the market pays, that indicates something structural: the overhead is too high, the billable proportion is too low, or the work is not sufficiently differentiated to command it.

Each of those has a different response, and none of them is charging a rate that does not cover costs.

The most common fix is increasing billable hours rather than the rate, by reducing travel, quoting more efficiently, or declining the work that consumes disproportionate time.

The annual review

Run it once a year with actual figures rather than estimates.

What you actually billed, what the business actually spent, and how many hours you actually worked. That comparison against the target is the only honest measure of whether the rate is working.

Most businesses discover their billable proportion is lower than assumed, which is more actionable than any pricing theory, and it connects directly to what a visit should cost, as covered in charging for the callout.

Frequently asked questions

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