How to Calculate Your Hourly Rate as a Sole Trader

Calculate your hourly rate by dividing the annual revenue your business needs by the hours you can realistically invoice. That gives you a cost-based starting point. Your final selling price also needs to reflect demand, scope, risk and what the result is worth to a customer.

Use our free hourly rate calculator alongside this guide. It starts with an illustrative example you can replace with your own figures. The numbers below are a planning exercise, not surveyed Australian industry rates.

Start with the money the business needs

Write down three annual amounts. First is the owner income you want the business to support, before personal income tax. Second is the overhead budget: expenses needed to keep operating regardless of which client is on the calendar. Third is a reserve for retirement savings, equipment replacement or business resilience that you haven't already included elsewhere.

Planning item	Illustrative annual amount	What it represents
Owner income	$80,000	Before personal income tax
Business overheads	$20,000	Software, insurance, workspace, administration and other operating costs
Chosen reserve	$10,000	Retirement savings and a business buffer
Revenue needed	$110,000	Total the paid work must support

Separate the planning budget from the treatment of an expense in your tax return. Putting an equipment allowance in a pricing budget does not determine whether, or when, you can claim a deduction. Similarly, a sole trader's drawings are not a wage expense simply because they appear as an owner income target in this model.

Check for double counting. If software is already in overheads, don't add the same subscription to every job. If your reserve already includes equipment replacement, don't include the same allowance twice. For a company employing its owner, the relevant payroll costs need their own treatment in the budget.

Work out how many hours you can actually invoice

Start with working weeks after holidays, illness and training. Multiply that by total working hours each week. Then apply the proportion you expect to bill to customers.

In this example:

• 46 working weeks × 38 hours = 1,748 total working hours.
• 60% billable time means 1,048.8 hours can be invoiced.
• $110,000 ÷ 1,048.8 = an hourly floor of $104.89, rounded up to the next cent.

The other 40% of time isn't wasted. It pays for quoting, scheduling, bookkeeping, marketing and business administration through the rates charged during paid work. The mistake is expecting both blocks of time to generate invoices.

If you have time records, use them. Review several ordinary weeks, including a quiet one. If you are starting, write down the assumption and track it from your first job. An estimate becomes more useful when you can compare it with actual hours.

Test a quiet period before relying on the result

Keep the $110,000 revenue target, 46 weeks and 38-hour week unchanged, then vary utilisation:

Billable share	Annual billable hours	Required hourly floor before GST
40%	699.2	$157.33
50%	874	$125.86
60%	1,048.8	$104.89
80%	1,398.4	$78.67

These are alternative scenarios, not recommendations. An 80% assumption may leave too little room for selling and administration in a solo business. A higher utilisation rate is only helpful if the extra paid hours are achievable without pushing unpaid work into evenings indefinitely.

If the required rate is above what customers will pay, identify which assumption needs to change. Options include reducing overheads, narrowing the service, improving delivery efficiency, changing customer segment or revising the income target. A spreadsheet cannot create demand for an otherwise unviable offer.

Turn the hourly floor into a quote

Suppose a project needs ten delivery hours. At the example floor, those hours need to produce $1,048.90 before GST. If the job also requires $150 of specific materials that were excluded from your annual budget, the starting cost-based quote is $1,198.90.

That still needs a scope check. Does the estimate include preparation, customer meetings, delivery, testing and the agreed revisions? Include project-specific work in the job estimate; keep general business administration in the utilisation allowance. Otherwise you can either omit time entirely or charge for the same assumption twice.

Write down what is included, what counts as a variation, when payment is due and how GST is treated. Our guide to business contracts explains the broader agreement. Business.gov.au also explains contractor payment terms and scope.

The floor is a check on the economics. A fixed fee can be higher where the customer values expertise, speed or a well-defined result. Business.gov.au's pricing strategy guidance covers the wider choice between cost-based and value-based approaches.

Keep GST, profit and cash separate

The calculator shows an amount before GST and a conditional figure with 10% added. Add GST only when it applies to your supply and registration circumstances. The GST calculator explains the inclusive and exclusive formulas.

The revenue target is also different from cash in the bank. You might invoice enough this month but collect it next month. Keep a cash-flow forecast alongside the pricing budget so a profitable job doesn't leave you unable to pay bills while waiting for the customer.

Review your figures when overheads change, the work takes longer than expected or your billable share falls. Compare estimates with completed jobs before changing every price. A rate that looked adequate at the start can stop covering your costs when scope expands.

Key takeaways

• Divide the revenue you need by billable hours, not all hours worked.
• Allow for time off, unpaid administration and a realistic amount of selling work.
• Treat the result as a planning floor; test scope, demand and customer value before quoting.
• Keep owner income, overheads and reserves distinct to avoid counting costs twice.
• Check profitability and collection timing separately.

Where to get help

Use the calculator to test assumptions, then take the budget to your accountant if you need help separating owner income, company payroll costs, reserves and tax. Use the official pricing and contractor guidance linked above when turning the calculation into a written offer.