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The short version
- Your hourly rate is the income you want plus your yearly business costs, divided by the hours a client actually pays for.
- A flat rate is hours times your rate, plus materials, plus a buffer for what you cannot see yet.
- A markup is added to your cost; a margin is the share of the price you keep. A 25% markup is a 20% margin.
- Price from your numbers first, then check it against what the work goes for where you are.
Start with your hourly rate
Even if you never bill by the hour, you need to know what an hour of your time has to earn. Every other method is built on it.
- Decide the income you want from the business for the year, before personal income tax.
- Add your yearly business costs: vehicle, tools, insurance, phone, software, licenses, accounting, advertising.
- Count the hours a client pays for. Not the hours you work: driving, quoting, buying supplies and invoicing are real hours that no one pays for directly.
- Divide the income plus costs by the billable hours.
Worked example
A solo tradesperson
- Income target
- $60,000
- Yearly business costs
- $12,000
- Billable hours (25 a week × 48 weeks)
- 1,200
- Hourly rate ($72,000 ÷ 1,200)
- $60.00 an hour
The 25 billable hours assume about 15 hours a week go to driving, quoting and paperwork, and 4 weeks off. Change any of them and the rate moves.
The result is the least you can charge to hit your target, not what you must charge. Many people round up to a clean number and review it every year. Try your own numbers in the hourly rate calculator.
Flat rate pricing
Clients like a fixed price because they know the cost before they say yes. You carry the risk if it takes longer, and keep the gain if you are quick. Build it from the parts, never from a feeling:
Worked example
Installing a bathroom exhaust fan
- Labor: 3 hours × $85
- $255.00
- Fan, duct and fittings at cost
- $140.00
- Materials markup (25% of $140)
- $35.00
- Buffer for surprises (10% of $430)
- $43.00
- Flat price before tax
- $473.00
Many people round to $475 or $480. Tax goes on top, at the rate where the work is done.
Once you have priced a job like this a few times, save the result and reuse it. In Sumocat, saved items keep your prices with units like hr, sq ft or visit, and you can add several to an estimate at once. They are free.
Markup and margin
Markup and margin describe the same profit two ways, and mixing them up is one of the most common pricing mistakes.
| Compares the $20 profit with | Result | |
|---|---|---|
| Markup | The cost ($80) | 25% |
| Margin | The price ($100) | 20% |
If you need a 30% margin and add 30% to cost, you fall short. To reach a margin, divide the cost by one minus the margin:
Worked example
A 30% margin on a $45.50 part
- Cost
- $45.50
- Price for a 30% margin ($45.50 ÷ 0.70)
- $65.00
- Same price as a markup ($19.50 ÷ $45.50)
- about 42.9%
The markup calculator works either way: a cost and a markup into a price, or a price into a margin.
British Columbia contractors: PST is part of your cost
The Government of British Columbia says a real property contractor generally pays PST on the taxable goods used to fulfill a contract, and does not charge customers PST. So on $1,000 of materials, your cost is $1,070.00 with 7% PST, and a 20% markup on that is $214.00. Mark up the full cost, not the price before PST. Rules differ in other provinces, so check yours.
Which method fits the job
| Method | Best when | Watch out for |
|---|---|---|
| Hourly | The scope is unclear: repairs, troubleshooting, changes mid job. | Clients worrying about the clock. Give an estimate of hours. |
| Flat rate | You have done the job many times and can see all of it. | Hidden problems. Say what is not included. |
| Cost plus markup | Materials or subcontractors are a big part of the price. | Thin markups that do not cover the time spent buying and handling. |
Then write it down. A clear estimate or quote with the method and what is included avoids most price arguments; see invoice vs estimate vs quote. On bigger jobs, ask for part of it up front: how to ask for a deposit.
Check your price against the market
Your numbers tell you the least you can charge. The market tells you what clients will pay. If your rate comes out well above what others charge, look at your billable hours and costs first: more paid hours lower the rate more than anything else. If it comes out well below, you may be leaving money on the table.
Review your prices at least once a year, and when your costs change. A small yearly increase is easier for clients to accept than a big jump after years of the same price.
Sumocat opens on a calculator: do the math the way you would on any calculator, and each amount becomes a line on the estimate. Trade pages show the units and example prices for contractors, cleaners, landscapers and more.
Turn the price into a quote
Lines, units, taxes and a valid until date, then a PDF. Free, no sign up.
Questions
How do I calculate my hourly rate?
Add the income you want to your yearly business costs, then divide by the hours you can bill in a year. $60,000 of income and $12,000 of costs over 25 billable hours a week for 48 weeks is $72,000 ÷ 1,200 hours = $60.00 an hour.
What is the difference between markup and margin?
Markup compares the profit with the cost; margin compares it with the price. Buying for $80 and selling for $100 is a 25% markup and a 20% margin.
Should I charge by the hour or a flat rate?
Flat rates work best for jobs you know well, because clients like a fixed price and you keep the gain from working efficiently. Hourly is safer when you cannot see the whole job, like repairs and troubleshooting.
How much should I mark up materials?
It depends on your trade and on how much time buying, picking up and handling the materials takes. Start from the margin you need to cover that time and the risk of returns, then check it against what clients in your area pay.
Sources
The official pages this guide relies on, with the date we last checked each one. Rules and rates change, so check the page itself before you rely on it.
- Government of British Columbia, Provincial sales tax frequently asked questions. www2.gov.bc.ca/gov/content/taxes/sales-taxes/pst/faqs Checked .