The Real Cost of Running a Trade Business: A Breakdown Tradies Need to Know
You finish a big job, send the invoice, and feel pretty good about the $15,000 that's about to hit your account. But after paying for materials, your apprentice's wages, fuel, insurance, and that unexpected tool repair, you're left wondering where all the money went.
Sound familiar?
Many tradies focus on their hourly rate or day rate without fully understanding the true cost of running their business. The result? Working harder than ever but struggling to get ahead financially.
Let's break down the real costs of running a trade business so you can price your jobs properly and actually make the profit you deserve.
The Costs Most Tradies Underestimate
1. The Hidden Cost of Your Time
This is the big one most tradies miss.
Time you're not charging for:
Quoting jobs (not all quotes convert)
Invoicing and chasing payments
Bookkeeping and admin
Shopping for materials
Travel between jobs
Answering calls and emails
Marketing and social media
Reality check: If you're on the tools 40 hours a week, you're probably only billing 25-30 hours. The rest is unpaid business time.
2. Materials and Waste
Material costs are rising, and waste adds up quickly.
Consider:
Price fluctuations (timber, copper, PVC)
Minimum order quantities
Offcuts and waste (usually 10-15%)
Storage costs
Damaged or defective materials
Emergency supply runs (paying retail prices)
Reality check: Always add a waste factor and contingency to your material quotes. Things rarely go exactly to plan.
3. Subcontractors and Labour
If you're not doing everything yourself, labour is usually your biggest cost.
Don't underestimate:
Wages (including superannuation)
Workers compensation insurance
Training and supervision time
Downtime between jobs
Sick leave and annual leave (for employees)
Payroll processing costs
Reality check: An employee costing you $30/hour in wages actually costs your business $40-45/hour when you factor in super, insurance, and leave entitlements.
4. Tools and Equipment
Whether you're a sparky with $30,000 worth of tools or a plumber with specialised equipment, this is a huge ongoing cost.
Don't forget:
Initial tool purchases
Tool replacement (they wear out, get stolen, or break)
Power tool batteries and chargers
Calibration and testing equipment
Tool insurance
Storage and security
Upgrades for new technology or regulations
Reality check: Budget at least $3,000-$5,000 annually for tool maintenance and replacement, more if you're in a tool-heavy trade.
5. Vehicle Expenses (Beyond Just Fuel)
Your ute or van is your mobile office, but it's costing you more than you think.
What to factor in:
Registration and insurance (comprehensive, not just third party)
Regular servicing and maintenance
Tyres (tradies go through these faster than most)
Loan or lease payments
Depreciation (your vehicle loses value every year)
Roadside assistance
Tolls and parking
Reality check: That $40,000 ute? It's probably costing you $12,000-$15,000 per year to keep on the road, not including fuel.
6. Insurance (It's Not Optional)
Hope for the best, but protect yourself from the worst.
Essential coverages:
Public liability insurance (minimum $10-20 million)
Professional indemnity insurance
Workers compensation (once you have employees)
Income protection (what happens if you get injured?)
Tool and equipment insurance
Vehicle insurance
Reality check: Comprehensive insurance can easily cost $5,000-$10,000+ per year, but one claim could save your business.
7. Licensing, Training, and Compliance
Staying legal and competitive requires ongoing investment.
Regular costs include:
Trade licenses and renewals
White card and safety certifications
Ongoing training and skill development
Industry association memberships
Software subscriptions and apps
Safety equipment and PPE
Reality check: Budget $2,000-$4,000 annually to stay current and compliant.
8. Business Overheads
The stuff that keeps your business running but doesn't directly make you money.
The essentials:
Phone and internet
Accounting and bookkeeping fees
Website and marketing
Office supplies
Bank fees and merchant fees
Subscriptions (trade accounts, software)
Rent (if you have a workshop or office)
Reality check: Even a lean one-person operation has $5,000-$10,000 in annual overheads.
Calculating Your True Hourly Rate
Now for the reality check. Let's say you want to take home $100,000 per year. Here's what you actually need to charge:
Annual costs breakdown (example):
Desired salary: $100,000
Vehicle costs: $15,000
Tools and equipment: $4,000
Insurance: $7,000
Licenses and training: $3,000
Materials and waste: Variable per job
Business overheads: $8,000
Total fixed costs: $137,000 (before materials)
Billable hours calculation:
52 weeks minus 4 weeks holiday = 48 working weeks
48 weeks × 40 hours = 1,920 hours
Minus admin/quoting time (30%) = 1,344 billable hours
Your required hourly rate: $137,000 ÷ 1,344 = $102/hour
And that's before materials markup and profit margin!
This is why experienced tradies charge $80-150+ per hour. It's not greed—it's math.
How to Price Jobs Properly
Now that you understand your true costs, here's how to price jobs for profit:
1. Calculate your actual hourly cost (see example above)
2. Add your materials with a markup (20-30% is standard to cover waste, ordering time, and risk)
3. Factor in complexity and risk (difficult jobs, tight timelines, or problem clients deserve higher rates)
4. Don't forget your profit margin (aim for at least 20-30% profit after covering all costs)
5. Build in contingency (10% buffer for unexpected issues)
Common Pricing Mistakes
Charging what your mate charges: Your costs aren't the same as theirs. Price based on YOUR numbers.
Forgetting about unpaid time: If you spend 10 hours quoting but only win half the jobs, that's 5 hours per job you need to recover.
Using your old rates: Your costs have gone up. When did you last increase your prices?
Competing on price alone: The cheapest quote rarely wins the best clients. Focus on value, not just price.
Not tracking job profitability: If you don't know which jobs made money, you'll keep making the same pricing mistakes.
Taking Control of Your Costs
Understanding your true costs is empowering. It means you can:
Quote confidently, knowing you'll make a profit
Say no to jobs that aren't worth your time
Identify where you're overspending
Make informed decisions about hiring or expanding
Plan for tax time without nasty surprises
Actually pay yourself properly
Need Help Getting Your Numbers Straight?
If tracking all these costs feels overwhelming, you're not alone. Many successful tradies partner with a bookkeeper who understands the construction industry to:
Set up proper job costing systems
Track expenses accurately
Calculate true hourly rates
Provide regular profit and loss reports
Plan for tax and cash flow
At Augmenta Advisory, we specialise in helping construction and trade businesses understand their numbers and price for profit. We speak your language and know the unique challenges you face.
Ready to take control of your business finances? Contact us today for a free consultation. Let's make sure all your hard work is actually paying off.
Augmenta Advisory – Bookkeeping and advisory services for Sydney's construction and trade businesses.