One of the simplest ways to think about pricing a job is to work out an hourly rate.
You know roughly what you want to earn.
You know how many hours the work should take.
So you multiply the two and arrive at a price.
Simple.
Except there's a problem.
Not every hour you spend working is an hour you can charge a customer for.
Running a trade business involves far more time than the hours spent with tools in your hand.
There are quotes to prepare, customers to contact, materials to collect, jobs to travel between, invoices to send and equipment to maintain.
Once you take those things into account, your real cost of running the business can look very different from the number on your price list.
The Difference Between Working Time and Chargeable Time
Imagine a tradesperson works a 40-hour week.
It would be tempting to assume that means 40 hours of billable work.
But perhaps five hours are spent travelling between jobs.
Another three hours are spent preparing quotes.
Two hours are spent ordering materials and dealing with suppliers.
A couple more hours go towards invoicing, bookkeeping and administration.
Suddenly, the amount of time actually spent carrying out chargeable work is considerably lower than 40 hours.
This is one of the most important things to understand when setting prices.
Your business has to generate enough revenue from your chargeable hours to cover the hours that aren't directly chargeable.
Travel Is Part of the Business
Travel is an obvious example.
Getting from one customer's property to another takes time and costs money.
There's fuel, vehicle maintenance, insurance and potentially parking or other expenses.
If you're travelling significant distances between jobs, that time needs to be considered when deciding whether a job is commercially worthwhile.
This doesn't necessarily mean charging customers a separate travel fee.
It means understanding the true cost of the work before agreeing to a price.
A job that looks profitable when you only consider the time spent on site can look very different once the journey there and back is included.
Materials Don't Just Cost What You Pay the Supplier
Materials obviously need to be included in the price of a job.
But there can be additional time and costs associated with obtaining them.
You may need to research products, order them, collect them, transport them and potentially return or replace something if it's incorrect.
There can also be waste, storage and unexpected material requirements.
This is another reason why simply adding a percentage to the purchase price isn't always enough.
The way materials are sourced and managed can have a meaningful effect on the overall profitability of a project.
Tools and Equipment Have a Cost
Tools are essential to most trades.
But they aren't free simply because you've already bought them.
Tools wear out.
Batteries lose capacity.
Blades become blunt.
Equipment needs servicing.
Some items eventually need replacing.
Specialist equipment may also require a significant upfront investment despite only being used occasionally.
A professional business needs to recover these costs over time.
That doesn't mean adding a random "tool charge" to every invoice.
It means understanding that the price you charge needs to contribute towards the equipment required to deliver the work.
Insurance Isn't Optional Overhead
Insurance is another cost that can easily disappear from an hourly-rate calculation.
Depending on the business, this could include public liability insurance, vehicle insurance, tools and equipment cover, professional indemnity and other forms of business protection.
The customer may never see these costs.
But they're still part of operating professionally.
If your pricing doesn't account for the overheads of running a legitimate business, the gap eventually has to come from somewhere.
Don't Forget the Time Spent Winning the Work
There's also a significant amount of work that happens before you ever arrive at the customer's property.
Someone has to answer the enquiry.
Questions need to be answered.
A site visit may be required.
Measurements might need to be taken.
A quotation needs to be prepared.
The customer may have follow-up questions.
Sometimes several potential customers will contact you before one actually becomes a paying job.
That means your business is spending time generating work as well as completing it.
Only some of those hours directly produce revenue.
Your pricing needs to account for the whole process.
What About Quiet Periods?
Every trade business can experience quieter periods.
There may be seasonal fluctuations.
Weather can affect certain types of work.
Customers can postpone projects.
Economic conditions can change demand.
If your pricing only works when every hour of every working week is filled, the business can become vulnerable.
A sustainable price needs to leave enough margin to cope with periods when the diary isn't completely full.
That doesn't mean dramatically increasing prices because you might have a quiet month.
It means understanding that 100% utilisation isn't a realistic assumption for most businesses.
Holidays and Time Off Matter Too
One of the differences between being employed and being self-employed is that time away from work doesn't automatically come with a salary.
If you're running your own business, holidays, sickness and other time away from work still need to be financially accounted for.
The same applies to bank holidays and other days when you aren't generating revenue.
You don't need to calculate your pricing around working every available day of the year.
In fact, doing the opposite can be healthier.
Build a business where taking some time away doesn't immediately create a financial problem.
Your Hourly Rate Isn't Your Wage
This is perhaps the biggest distinction.
If you charge a customer £50 per hour, that doesn't mean you've earned £50 for yourself.
That £50 needs to contribute towards the costs of operating the business before anything that can properly be considered personal income is left over.
From that revenue may come:
  • Materials
  • Fuel
  • Vehicle costs
  • Tools
  • Insurance
  • Software
  • Phone costs
  • Accountancy
  • Advertising
  • Administration
  • Equipment
  • Unpaid travel
  • Non-chargeable working time
  • Tax and other business obligations
What remains after the relevant costs is much closer to the figure that actually matters.
A Higher Price Isn't Always the Answer
Understanding your costs doesn't automatically mean charging customers more.
Sometimes the answer is improving efficiency.
Reducing unnecessary travel can help.
Better scheduling can create more productive days.
Ordering materials more effectively can reduce wasted time.
Using the right tools can make jobs faster.
Improving the quoting process can reduce unpaid administration.
And focusing on the types of work where your business has a genuine advantage can improve margins without simply increasing the price of everything.
Pricing is therefore about more than finding a number customers will accept.
It's about understanding the economics of the business behind that number.
What Should a Tradesperson Actually Calculate?
You don't need a complicated financial model to start.
At a basic level, understand your annual business costs and how much genuinely chargeable work you can realistically complete.
Then consider:
How many days will I actually work?
How many hours per day are realistically chargeable?
How much time goes into travel and administration?
What does my vehicle cost me?
What do my tools and equipment cost over time?
What do my insurance and other overheads cost?
How much time do I spend quoting jobs that I don't win?
How much downtime should I realistically expect?
The answers give you a much better foundation for deciding what your work needs to generate.
Price the Business, Not Just the Job
A quotation is ultimately about a specific piece of work.
But the price behind that quotation needs to support the wider business.
The van that gets you there.
The tools that allow you to do the job.
The insurance that protects the business.
The time spent preparing the quote.
The hours spent travelling.
The administration afterwards.
The periods when there isn't a job to invoice.
And, ultimately, the income you're trying to create for yourself.
That's why two tradespeople can look at exactly the same job and arrive at very different prices without either one necessarily being wrong.
Their businesses may have completely different overheads, operating areas, experience levels and capacity.
Your customer is paying for the job.
But your price has to support everything that makes delivering that job possible.
Understanding that difference is one of the most important steps in moving from simply doing trade work to properly running a trade business.