Calculating your business rates made easy! 💰 Here’s a quick guide to help you determine your hourly rate:
1. Calculate Direct Labour Costs:
This is typically the wage or salary paid to the employee.
Example: If you pay an employee AUD $25 per hour, then the direct labour cost is AUD $25/hr.
2. Calculate Indirect Labour Costs (also known as Overheads):
These are costs that are not directly tied to an employee’s work but are spread out over all employees. Examples include:
- Rent for office or workspace
- Equipment depreciation or leasing costs
- Employee benefits (health insurance, superannuation contributions, etc.)
- Administrative costs
Total all these costs for a specific period (say, a month) and then divide by the total hours worked by all employees during that period to get the indirect cost per hour.
Example: If your total indirect costs for a month are AUD $12,000, and your employees worked a combined total of 5,000 hours in that month, your indirect cost per hour is AUD $2.40 (AUD $12,000 ÷ 5,000).
3. Calculate the Charge-Out Rate:
Add the direct and indirect labour costs together to get the charge-out rate.
Example: Direct labour cost: AUD $25/hr
Indirect labour cost: AUD $2.40/hr
Charge-out rate: AUD $27.40/hr
4. Factor in Profit Margin (optional but recommended):
If you want to ensure a specific profit margin, increase the charge-out rate accordingly. For instance, if you want a 20% profit margin on the charge-out rate, you’d calculate it as follows:
Example: Charge-out rate (from step 3): AUD $27.40
Profit margin (20% of AUD $27.40 = AUD $5.48)
Final charge-out rate: AUD $32.88/hr
So, in this example, you’d charge clients AUD $32.88 per hour of work.
Keep in mind, the above is a simplified approach. Depending on the industry and the specific circumstances of the business, other considerations might come into play. Always adapt the method to fit the specifics of your situation in Australia.