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Sole trader hourly rate: a break-even approach

A break-even hourly rate is a planning figure. It asks: if I only bill a realistic number of hours this year, what rate recovers the money I need to draw and the costs of staying in business? It is not an award rate, not a market rate, and not a forecast of income.

What “break-even” means here

In this guide, break-even is the recovery rate that covers a chosen personal drawing, business overheads, and any provision you choose to set aside, divided by the hours you can actually invoice. After you have that rate, a particular job still needs its own materials and other direct costs, and you may then apply a markup or true margin. The hourly rate alone is not the quote.

People use different names for the same idea: cost rate, recovery rate, charge-out floor. The useful test is simple. If you billed exactly those hours, at that rate, and your costs matched the list you wrote down, you would cover the year you planned for. If you bill fewer hours, or costs run higher, you would not. That is why the hours assumption matters as much as the dollar totals.

Start with the year, not the job

Write down the personal amount you want the business to make available to you before you consider extra surplus on individual jobs. Then list overheads that continue even if a particular job does not: insurance, phone, software, accounting, workshop or storage, tools you replace over time, vehicle costs that are not billed to one client, licences, and similar items. Many sole traders also set aside money for income tax and superannuation. Those amounts depend on your own tax position. This page does not suggest a percentage and is not tax advice. A registered tax agent can help you plan withholdings.

Add those figures into one annual recovery total. Use your own numbers. A borrowed “average tradie rate” from social media is not a substitute for your costs.

Use hours you can invoice, not hours you are awake

A year has about 52 weeks. From that you subtract holidays, sick days, and public holidays you will not work. Of the days that remain, a slice goes to quoting, admin, purchasing, unpaid callbacks, and travel that you do not invoice separately. The hours left are billable hours — the denominator.

If the denominator is too optimistic, the rate looks cheaper than it really is. Example, labelled fictional: A$60,000 personal drawing plus A$18,000 overheads and provisions is A$78,000 to recover. At 1,200 billable hours the recovery rate is A$65 an hour. At 800 billable hours it is A$97.50 an hour. Same year, different honesty about time. Those dollars are an illustration of the division, not a recommendation and not a typical result.

Turn the rate into a job cost, then a quote

For a job, estimate hours including site time, pickup runs, and cleanup. Multiply by your recovery rate. Add materials and other direct costs. That sum is the job cost. Then choose a selling price with markup or true margin, as explained in markup versus margin. A 25% true margin on a fictional A$765 job cost is A$1,020 before GST. That surplus is not “profit you will definitely keep”; tax, slow payers, rework, and unused materials can all change what is left.

GST sits after this logic if you are registered for GST. Adding 10% GST does not give you a 10% better margin. See GST on quotes basics and the ATO’s GST registration guidance for the official rules.

What this rate cannot tell you

It cannot tell you what neighbours charge, whether a client will say yes, or how many jobs will arrive next month. If a market price sits below your break-even rate, that is information: the job may not cover the year you wrote down, unless you change scope, costs, or hours. Raising a price, lowering costs, or finding more billable hours are business choices with trade-offs. None of them is guaranteed to work.

A simple checklist

• Annual drawing you want the business to support.
• Overheads and provisions, in your actual figures.
• Realistic billable hours, after leave and unpaid work.
• Recovery rate = annual total ÷ billable hours.
• Job cost = (hours × rate) + direct costs.
• Quote price from markup or margin, then GST only if it applies to you.

You can run markup and margin on the free calculator, read the free preview PDF, or use the Quote & Break-Even Pack if you want the year setup and the job sheet in one workbook. The pack is a planning tool. It does not guarantee work, income, or a particular hourly result.