Most tradies set their hourly rate by looking at what other tradies charge and picking a number somewhere in the middle. It feels reasonable. It is not a business decision - it is a guess dressed up as market research.
The problem with guessing is that you have no idea whether that number actually covers your costs. It might. It might not. And if it does not, you are working full weeks and wondering why the bank account does not reflect it.
Setting a labour rate properly takes about 30 minutes and a bit of honest arithmetic. Here is how to do it.
1. Understand what your rate actually needs to cover
Your labour rate is not just your time on the tools. It needs to cover everything it costs to run your business - and then leave something over as profit.
Most tradies who undercharge are not being generous. They are just not counting everything. The Australian Taxation Office is clear that sole traders and contractors are responsible for covering their own tax, super, and insurance from their income - there is no employer doing it for them.
Your rate needs to recover:
- Your own wages - what you want to take home after tax.
- Superannuation - 11.5% of your earnings in 2025-26 under the Superannuation Guarantee rate.
- Income tax - roughly 32.5 cents in the dollar for income between $45,001 and $120,000.
- Vehicle costs - loan or lease payments, registration, insurance, fuel, and maintenance.
- Tools and equipment - purchase, replacement, and servicing.
- Business insurance - public liability, tools, and income protection.
- Licences and tickets - renewals, CPD, and trade memberships.
- Phone and software - admin tools, estimating software, and accounting.
- Marketing and advertising - even if it is just a Google Business Profile and a website.
- Accountant and bookkeeping.
- Unpaid time - quoting, travel between jobs, admin, and chasing invoices.
That last one is what tradies almost always undercount. If you spend 10 hours a week on non-billable activity, that time still needs to be paid for somewhere.
2. Calculate your actual billable hours
Before you can set a rate, you need to know how many hours in a year you can realistically charge out. Not how many hours you work - how many hours a client is actually paying for.
Start with a full year: 52 weeks x 40 hours = 2,080 hours.
Now subtract the hours you will not be billing:
- Annual leave - 4 weeks = 160 hours.
- Public holidays - approximately 10 days = 80 hours.
- Sick days - a conservative estimate of 5-10 days = 40-80 hours.
- Non-billable admin, quoting, travel, and business tasks - this varies, but 8-10 hours per week is realistic for a sole trader running their own jobs.
Run the numbers and most sole traders land somewhere between 1,000 and 1,400 genuinely billable hours per year. Use 1,200 as a working estimate if you are not sure.
3. Work out your cost of doing business
Add up everything it costs to run your business for a year. Be honest - go through your bank statements if you need to.
A rough example for a sole trader electrician or plumber:
| Cost | Annual estimate |
|---|---|
| Target take-home wage | $85,000 |
| Income tax (approx) | $26,000 |
| Superannuation (11.5%) | $9,775 |
| Vehicle (loan, rego, insurance, fuel) | $18,000 |
| Tools and equipment | $5,000 |
| Public liability and tools insurance | $3,500 |
| Phone and software | $2,400 |
| Accountant | $2,000 |
| Licences, CPD, memberships | $1,200 |
| Marketing | $1,500 |
| Contingency (10%) | $15,438 |
| Total CODB | $169,813 |
Divide your total CODB by your billable hours:
$169,813 / 1,200 hours = $141.51 per hour
That is your break-even rate. Every hour you charge below that number, you are losing ground.
4. Add your profit margin
Break-even is not a business. It is a job with more paperwork.
Profit is not a bonus - it funds equipment upgrades, covers slow periods, pays for expansion, and compensates you for the risk of running a business.
At 20% margin on top of the break-even rate above:
$141.51 x 1.20 = $169.81 per hour
Round it to $170/hr. That is your baseline rate before GST.
Add 10% GST for your invoices: $187/hr GST-inclusive.
5. Check it against the market - then ignore the ones who charge less
It is worth knowing what other tradies in your area charge. In 2026, licensed trade rates across Australia's capitals generally sit between $120 and $200+ per hour depending on trade, specialisation, and demand. Hipages and ServiceSeeking publish rough cost guides by trade for ballpark reference.
If your calculated rate comes in above the local market average, that is useful to know. But it does not automatically mean you should drop it. It means you need to either find efficiencies in your cost base, or compete on value rather than price.
6. Set different rates for different work types
Your single hourly rate does not need to be the same for every situation. Most established trade businesses use a rate structure:
- Standard rate - your calculated rate for regular job work.
- Call-out fee - a fixed charge to attend site, separate from your hourly rate, to cover travel and mobilisation.
- After-hours or emergency rate - typically 1.5x to 2x your standard rate for evenings, weekends, and public holidays.
- Variation rate - your standard rate or above, applied to unplanned scope changes (see How to Write a Variation for a Tradie Job).
7. Build your rate into every quote from the start
Knowing your rate is only useful if it actually makes it into your quotes. This is where most tradies break down: doing a quick quote from memory and rounding down because the job “feels” cheaper.
The Proposal and Estimate Builder in Smart Tools is built to stop that. You set your labour rate and it flows through every line item - hours, materials, and totals - so the quote reflects your actual business costs. Jump into Smart Tools to run your next quote with your real rate locked in.
For the full picture on why quotes end up short even when the rate looks right, read Why Most Tradies Underquote and How to Stop Doing It.
8. Review your rate at least once a year
Costs go up. Award wages go up. Fuel goes up. Insurance goes up. If your rate stays the same while your costs climb, your margin quietly erodes.
Set a reminder - tax time works well - to run through the CODB calculation again and adjust your rate accordingly. The Fair Work Commission publishes annual wage review decisions each July, which is a useful signal for labour-cost movement.
Bottom line
Your labour rate is not a number you borrow from the tradie down the road. It is the output of an honest calculation: what it costs to run your business, divided by the hours you can actually sell, plus a margin that makes the whole thing worth doing.
Run the numbers once. Set the rate. Build it into every quote from day one.
The Proposal and Estimate Builder keeps your rate consistent across every quote you send. See what is included across all Smart Tools at Pricing, or start free and run your next quote with the right numbers behind it.