How to Calculate Your True Hourly Rate?

Question

Hi all, just wanted to mention that we realized in our first year scraping by that we weren't covering our costs of doing business.
Even though we run our business out of our home, we jave insurance and licensing, vehicle expenses etc. That are part of our overhead.
Finally we took all those expenses and added them up, divided by the normal number of business hours per month and made sure to build that into our hourly charge. Now we are able to set aside the money we need to come up with every 6 mo ths or annually and don't have to woory about spreading ourselves too thin when the expenses arrive.
What are some shifts you made to build a sustainable business?

expertbookkeepr · Answer

Doing some cash flow forecasting is HUGE for business. It starts to make those unknown headaches visible and allows you to plan for whats ahead!

I have a 13 week cash flow forecast template that I can share with you if you need it.

chi_cleaning · Answer

We did something similar. We added up all of our overhead, labor costs, and profit goals to figure out what we actually needed to generate. We also built higher-than-market wages into the numbers because we wanted to attract and keep good cleaners.

What we found was that the exercise helped us understand our costs, but we didn't necessarily want to price our services based on hours. Over time, we moved away from custom quoting and created three service packages instead.

For example, our entry-level package takes about an hour to complete. Knowing our true hourly costs helped us determine what that package needed to sell for to be profitable. So instead of saying "we charge $X per hour," we price the package based on the outcome we're delivering, while making sure it still covers labor, overhead, and our profit targets.

It's made quoting faster, pricing more consistent, and given us a much better understanding of our margins.

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How to Calculate Your True Hourly Rate?

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