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Calculating a Charge-Out Rate

Oct 11, 2021

Calculating a Charge-Out Rate

In a recent discussion with a Gold Coast accountant the topic of calculating a charge-out rate arose.

It turns out his company charged him out to the value of $300,000 per annum with an hourly rate of $230 per hour once overheads were taken into account. The more experienced the accountant, the more the charge per hour. Here are some of the considerations when calculating your charge-out rate-:

	Weeks x Hours	Total Hours
Total Year	52 x 38	1,976
DEDUCT
Holidays	4 x 38	152
Public Holidays	2 x 38	76
Sick Days	1 x 38	38
Total Hours to Deduct		266
Balance Available		1,710
Less Non-Chargeable Tasks	eg 25% of your time	427.50
TOTAL CHARGEABLE HOURS PER ANNUM		1,282.50

Hour Rate = Annual Income

Hourly Rate	Annual Income
30.00	$ 38,475
40.00	$ 51,300
50.00	$ 64,125
60.00	$ 76,950
70.00	$ 89,775
80.00	$ 102,600
90.00	$ 115,425
100.00	$ 128,250

Factor In Overheads $15,000

Hourly Rate	Gross Annual Income	Fixed Overheads	Net Annual Income
30.00	38,475	15,000	$ 23,475
40.00	51,300	15,000	$ 36,300
50.00	64,125	15,000	$ 49,125
60.00	76,950	15,000	$ 61,950
70.00	89,775	15,000	$ 74,775
80.00	102,600	15,000	$ 87,600
90.00	115,425	15,000	$ 100,425
100.00	128,250	15,000	$ 113,250

Adjust for your personal scenario

1 Swap out the Fixed Overheads with your personal estimates.

2 Deduct Fixed Overheads from your Gross Annual Income

3 Take into account time required for research. Not every hour is billable. This depends on your industry.

Note work the figures to reveal your actual hourly rate or work the figures to estimate the hourly rate you need to charge for a desired income.

Trade Taxable Income

www.traderisk.com.au published the average taxable income by trade (2019). These are the amounts trades people estimate for insurance purposes (income protection).

"The figures have come from over 1,000 tradies from all states and territories, and based on previous years they are incredibly consistent and reliable across the years."
www.traderisk.com.au

Trade Taxable Income

Allowing for Inflation

If you were charging $100 per hour 10 years ago - allowing for inflation what should you be charging now to be the equivalent of that $100 today?

Year	Annual Inflation Rate	Hourly Rate
2022	7.5% (projected)	127.03
2021	2.86%	118.17
2020	0.85%	114.88
2019	1.61%	113.91
2018	1.91%	112.10
2017	1.95%	110.00
2016	1.28%	107.90
2015	1.51%	106.53
2014	2.49%	104.95
2013	2.45%	102.40
		$100.00

To run a business well it is also important to know -:

Calculating Your Overhead Rate

$25,000

$100,000

Overhead Rate = 25,000 / 100,000 = 25%

As a general rule a healthy Overhead Rate is anything below 35%

Many accountants will use a general rule for employing someone. Their chargout rate should be 3.5 times their salary. For a contractor this is 2.5 times.

This example is an over-simplification, your business overheads may well exceed $15,000. The process of calculating your total chargeable hours is going to be 80% in a best case scenario, we have alowed 75%. However an at a glance look can be a benefit to quickly estimate your own scenario. Including employees also adds complexity to the calculation. If you know your overheads you can work on good 'rule of thumb' quotes.