9 Signs Your Trade Business Is Undercharging (And What to Do About It)

If your trade business is busy all year and there is still nothing in the account at the end of the quarter, you are almost certainly undercharging. Being flat out is not the same as being profitable. This article lists the signs most tradies miss, then shows you how to work out what you should actually be charging and how to raise prices without losing the customers worth keeping.

Why are so many tradies busy but broke?

Most tradies set their rate by looking sideways. The plumber down the road charges $90 an hour, so you charge $85 and win the job. Nobody checked whether $85 covers the ute, the insurance, the apprentice or the person quoting at 9pm.

Many trade businesses discover in their first session with us that they are not covering overheads at all. Materials and on-the-tools wages get paid, and everything else is funded by the owner working longer for free. That is the pattern behind every sign below.

Sign 1: You win almost every quote

A high win rate feels like success. It is usually a warning. If you land nine out of ten quotes, the market is telling you that you are the cheapest option, not the best one. A builder or carpenter charging properly should expect to lose a fair share of quotes to cheaper operators.

Sign 2: Customers never push back on price

When nobody ever says "that is a bit more than I expected", you have left money on the table. Customers who accept every quote without a blink are not generous. They know a good deal when they see one.

Sign 3: There is no money for the next ute or a week off

A trade business charging properly can replace a ute, buy a new tile saw, or fund a week at the coast without a panic. If every big purchase goes on finance and every holiday feels impossible, the margin is not there. The business is running on your energy instead of its own profit.

Is your own wage in the quote?

Pull up your last quote and find the line for your wage. Not the labour for the job, your wage as the owner for quoting, ordering, chasing payment and managing the apprentice. For most tradies that line does not exist. That is sign four, and the most expensive mistake on the list.

The jobs that fall out of a quote without the owner's wage include:

• Site visits and measuring up, often two trips before the job starts
• Writing the quote, chasing supplier pricing and sending it
• Ordering materials, picking them up, returning the wrong ones
• Invoicing, following up slow payers and doing the BAS
• Training and supervising the apprentice

If none of that is in the rate, you work those hours for nothing. The Profit First business coaching program exists because this gap sinks more trade businesses than bad workmanship ever has.

Sign 5: Overheads are not in your hourly rate

Overheads are everything you pay whether or not you are on the tools this week. Insurance, vehicle costs, phone, software, licences, the accountant, workshop rent and tools. The business.gov.au guides on costing are a decent starting point, but the number that matters is yours.

As an example, a sole operator electrician with $45,000 a year in overheads who bills 1,200 productive hours needs $37.50 an hour just to cover overheads, before a wage and before profit. Charge $85 and pay yourself $45 an hour and you are left with $2.50. One slow month wipes that out.

Sign 6: Materials are marked up but labour is not

Plenty of tilers and joiners add 15 or 20 percent to materials and call that the margin. It is not. A materials markup covers breakage, supplier price rises and sourcing time. Labour needs its own margin on top of your wage. If labour goes out at cost, the job only makes money when the materials bill is large, which is backwards for a labour-heavy trade.

Who is setting your cash flow, you or your slow payers?

Sign seven. If paying your suppliers depends on which customer finally pays their invoice, your pricing has no buffer. A business with a real margin can carry a late payer for 30 days without missing a wage run. The Australian Small Business and Family Enterprise Ombudsman has free guidance on payment terms and disputes, but the deeper fix is a rate that leaves room to wait.

Sign 8: You price by looking at the bloke down the road

His costs are not your costs. He might have a paid-off ute and no apprentice. He might be undercharging too, and about to go under. We cover this in detail with plumbers, who are the worst offenders because the market rate is so visible.

Sign 9: You cannot say what a job cost you

If you cannot compare the hours actually spent on your last five jobs to the hours quoted, you cannot know whether you are undercharging. You can only feel it.

How do you find your real cost per productive hour?

This is the core of the Tradie Lifestyle Pricing Model we teach. You need three numbers: annual overheads, the wage you want, and the hours a customer actually pays for in a year. For most tradies that is 1,100 to 1,400 hours, not the 2,000 they assume.

1. Add up twelve months of overheads from your accounting software or bank statements.
2. Add the wage you want. A fair one, not a sacrifice.
3. Divide the total by your real billable hours. That is your break-even rate.
4. Add a profit margin on top. That is your floor on every new quote.

As an example, $45,000 overheads plus a $95,000 wage over 1,200 billable hours is $116 an hour to break even. Add 20 percent profit and the rate is about $140. If you charge $85, that gap is the reason the ute is on finance. The ATO sets out which records to keep for GST and income tax, and those same records show you your true costs.

What should you do this week?

Do not raise every price tomorrow, and do not send existing customers a letter announcing a 40 percent increase. That loses the good ones along with the bad.

Instead, do this, and it costs nothing:

• Pull your last 10 quotes and write the hours actually spent next to the hours quoted.
• Work out your cost per productive hour using the steps above.
• Put the new rate on every new quote from Monday. New customers have no old price to compare.
• Rank your existing customers. The ones who pay on time and respect your work get a staged increase with a conversation. The ones who haggle, pay late and call on weekends get the full new rate, and if they leave, let them.

Here is the honest caveat. Raising prices will lose you some customers, and the first month usually feels worse before it feels better. Your win rate drops, the phone goes quieter, and you will want to go back. Hold the line. A builder winning six quotes in ten at a proper rate makes more than one winning nine at a loss, and works fewer hours. The growth and accountability program is built for exactly that month, so you do not blink.

Where to start

In order: work out your real cost per productive hour, put it on new quotes first, then sort your existing customers into keep and release. If you want a second set of eyes on the numbers before you change anything, book a free scale session. We map where the profit is leaking. Or call 0477 440 404.