How much do tradies make?
It's quite a common question. I see it in stupid articles on the internet surveys done Newspapers,
High pages, people like that doing surveys and putting out these kinds of strange ideas
of how much traders actually make.
And I put quote marks around and make just then. I'm going to try and investigate this for you just now
because there's quite a lot going on.
I try to make it all clear. It starts
when these articles and using surveys come out about what different tradies make
and the ranges are quite large. They'll say electricians make between $60,000 and $150,000 a year
and between $50 and $120 an hour and I just think that doesn't really tell anybody anything.
It's not clear, who's making what they seem to mix up charge-out rates
and how much profit people make and how much wages people are paid.
So I thought I would go through those, spell it out.
And the reason I'm doing this is because I suspect you kind of understand but the reason I'm doing this now
is partly because it's fun and partly because I think I want to have you
help you be clear when you're challenged on your price in particular.
The difference between charge out rate and what people actually make
especially when somebody doesn't really get it. You can explain it to them and I hope this helps.
And I hope this helps.
So charge out rate.
As you know this is the hourly rate, the business charges for its skilled tradespeople.
If the business does fix the price quoting and it should,
this might not be very visible because it might be wrapped up in a quote for a job or even a price list
but an hourly charge rate is in there even if it's wrapped and in Australia an hourly charge rate for a plumber
or an electrician is between $90 and $120 an hour. Carpenter's $80 or $85
a bit more for project managers and site managers gardeners and painters seem to be a bit less $75 or $80.
So we're having charge-out rates around that number.
When I'm trying to understand what a rate really means, I like to think of it in terms of what someone can make
in a year because $100 an hour is meaningless. If you only work 10 hours a week.
If you can only be charged out 10 hours a week.
So let's translate everything back to annual income and you're making.
If one of your employees or you is charged out that $100 an hour,
they can potentially make $100 by 40 hours a week which is $4000 a week by 52 weeks a year,
can't they? They could potentially make that and that would be $208,000.
They can, can't they? Because nobody is ever charged out every hour of every day of every week and every year.
Nobody can sustainably work that many hours on the tools every week.
We have smoko, we have days off, we have holidays,
we have public holidays, we have sick days, we f*ck a bit as well, don't we?
There's time spent on Toolbox Talks, in traffic talking to customers, buying materials all sorts of stuff
so even if your charge-out rate is $100 per hour, it's a mistake to think that $4000 a week
every week. So if we correct
for our tradies holidays, it's four weeks or 20 days, it's public holidays, it's sick days,
he's probably making, our tradie more like seven hours by five days by $100 times 44 weeks which is $154 000
and then if we correct again for that time wasted that f*ck about time, that's time spent not on the tools.
I normally say 80% charged over your week is reasonable so $80 of that will go down to $123 000.
It's still not bad money for that tradie. Now that's charged money.
$123 000 a year is a reasonable estimate for how much a tradesperson can bring into a business.
Holidays and things are accounted for, still not that bad money if that person is self-employed.
However, they're going to have to pay for insurance and vehicle and tools
and membership of their professional organization etc.
But they do also charge a margin on materials. I'm going to take a guess here
and say that a self-employed tradie could make around $125k once everything is paid
and if they're busy most of the time.
And please don't bring me up or put comments and go “I make more than that or less than that”
because I have just pulled these numbers but they're not far off I don't think.
If you're working for someone else, maybe they're working for you then they make you that $123,000
from their labor. If we apply the same rules of thumb,
you probably pay them between $60 and $100,000 on it, don't you?
You probably make margin on the materials on top of the money you make
on their labor that $123k minus what you pay them and of course you have business expenses as well.
Your vehicles, your insurances, your marketing, your admin people, premises, software, accountant,
bookkeeper, business coach.
So for your tradesmen that makes you $125k a year,
you might be making 25k on top of that person, that's a $20,000 net margin.
I know I'm winging it remember these are numbers, I've used simple numbers that I can add up in my head as I
wrote this this morning and the numbers vary a lot across the different businesses so please don't ping me on the numbers.
But a tradie doesn't really make $100 an hour 40 hours a week, 52 weeks a year.
So a tradie doesn't really make $100 an hour $125,000 per year for busy self-employed tradie,
seems more realistic to me. It's less for somebody employed. They'll be getting a wage between $60
and $100 000 and for you as a business owner it's a bit more murky, isn't it? Say you're making that $125k
on your own and you start growing and hiring, you might start making $25k
of every tradesperson you hire but supporting them and doing the sales and the admin that will take time
so you can either spend less time on the tools yourself and make less money yourself.
We can work more hours for the same money
which is the same thing or you can start hiring people to work in the office and do some of that support
and that costs you money so whichever way you kind of reduce your effective income
so as a trades business owner, you don't start making much more money when you start hiring people
and growing and this is
part of that growth path I've talked about before buying my little made-up maths
five tradespeople kind of replaces your wage and you can afford to be off the tools full-time
and supporting them or on the tools a bit and have someone in the office.
So I'm thinking it's not until you've got five tradespeople that you're starting to see the joy
in having grown your business. Growing up to two and three and four
might leave you a bit better off but not feeling the real benefit.
Now everyone's business is different. You all pay people different amounts,
you'll charge different amounts, you'll have different margins but this number isn't too far from the truth either.
I've worked with a lot of trades businesses over the last few years.
It's not far from the truth. If a self-employed trader makes $125k
and unemployed tradie between $60 and $100 then a trade business owner should be on around $125k,
that's your money or your salary, your profit or your salary combined or drawings or profit.
But that probably won't grow much until you have a few people on board,
five or more. So next time a customer or some smart ass on the internet calls out your massive hourly rate
and you're secretly comparing it to the shitty one that they get but remembering that they get 40 hours a week,
52 weeks a year remember this.
I hope that was helpful. That was a short informational video about knowing your numbers
which is an important part
of growing your business
past where you're making more money than you did when it was just you
which is really what we're talking about here.
That's what I'm a business coach for. I'm for people who want to go through that
difficult period of having a few people when it's not much better and go past that and make more money.
I want to scale a bit. Don't rely on my numbers. I was approximating, do your own numbers.
We'll put your numbers into those calculations. I'll help you if I'm your business coach.
I'll help you know your numbers and build your business properly using systems and structure
including for your numbers and if you think business coaching might be for you, book a 10-minute chat,
talk to me. We've got a process to go through
before we decide whether you're doing it or not.
Or as usual come to a Tools Down workshop.
See you later.