How much should you charge per hour as a handyman? Does anybody actually know the answer to this? Nope! It’s up to you to figure that out. Handyman hourly rates are all over the map. Some demand over $100/hour because they know what their doing and do it efficiently, professionally, and immaculately. Then, there’s the guys on craigslist that charge $10/hour. In this post, I’ll provide a simple step by step way of determine what you should charge when billing by the hour.
The truth is, the amount you can charge for your services are determined by one thing, and one thing only – the customer’s willingness to pay.
That’s right, good old supply and demand never goes away.
There are hundreds of factors that play into how much customers are willing to pay for your time including professionalism, experience, reputation, location, type of project, and so on. All of these factors should be considered along with the process I’ve detailed below.
How to Determine Your Hourly Rate
#1 Living Expenses
How much does it cost for you to live comfortably and happy?
Write down a list of all of your expenses and an approximate monthly total for each. Spend time and try to think of all of your expenses, even the ones you only pay once a year. Assign a monthly value to each and add them into an excel spreadsheet (or just write them down).
Make sure not to leave anything out. Include entertainment and even a little extra for unexpected expenses. The idea here is see how much living actually costs. If saving money for retirement is part of your lifestyle, make sure and include that, too.
#2 Business Expenses
Now, list your handyman business expenses and assign a monthly value to each expense. Once again, include everything. Here is a list of most handyman business expenses.
- Health Insurance
- Liability Insurance
- Vehicle Mileage and Maintenance
- Office Supplies
- Mailbox Rental
- Licensing Fees
Figure out your tax responsibilities by doing a little research. Here are some taxes you will be required to pay. However, this list is not all inclusive and you may have other tax obligations outside of these. I am not a tax professional and am only providing the following information as an example. Your specific tax obligations may be different and you may consider consulting with a professional.
Self Employment Tax – For the year of 2012, self employment taxes are set at 13.3% according to irs.gov. These do change each year, so you’ll need to keep up with this.
Federal Income Tax – As you probably already know, this tax depends on how much money you make each year. The more you make, the higher the percentage of taxes you will pay. For the purpose of figuring out your hourly rate, you will need to estimate this tax. After all expenses and tax write-offs, I don’t plan on making more than $30,000 this year. I’ve estimated my federal income tax at about 15% based on my expected tax bracket.
State Income Tax – Check with your state to find out if you need to pay this tax.
Once you have an estimated percentage for each tax, add them all up to come up with your total tax percentage.
Let’s say your taxes are as follows:
Self employment: 13.3%
Federal Income Tax: 15.0% (based on less than 32K/year)
State Income Tax: 0%
Total Taxes = 28.3% (example only)
#4 Billable Hours
The next step is to figure out how many billable hours you are going to work each month (assuming you have the business).
You may be thinking that 40 hours is a good estimate. In reality, however, with all of the quoting, following up, driving time, etc. it is probably more realistic that you will bill somewhere in between 25 and 35 hours per week.
The goal here isn’t to see how many hours a week you can work, but how many hours it is reasonable to work without totally consuming your life. After all, you’ve started this business to have some freedom right? Enjoy that freedom and set a limit on your billable hours.
For my handyman business, I’ve decided that 25 hours/week is a good amount of work. This allows me time to improve my business, have a personal life, and run this blog. I’ve based my work load on my own personal lifestyle design. I recommend you do the same.
#5 Do the Math
Now that you have an understanding of your costs and how much you think is a reasonable time to work, you can do some quick calculations to see how much you need to charge to live the lifestyle you have designed for yourself.
It goes like this:
Total Monthly Living Expenses = L
Total Monthly Business Expenses = B
Total Hours/Month = H
Total Taxes (%) = T
Hourly Rate = L/[H * (1 - T)] + B/H
So let’s say you need to make $3,000/month to live, expected your business expenses to be about $1,200/month, estimate your taxes at about 30%, and plan to work about 32 billable hours per week.
L = Monthly living expenses = $3,000
B = Business Expenses = $1,200
H= Monthly Billable Hours = 128
T = Total Tax Rate = 30% = 0.30
Hourly Rate = $3,000/[128 *(1-.3)] + $1,200/128 = $42.86/hour
So, now you know how much you need to charge in order to live the now defined lifestyle that you have laid out in terms of expenses. The next step is to evaluate this hourly rate and determine if you can provide that much value in one hour.
Is the number you came up with reasonable? Based on your experience, qualifications, etc, can you comfortably look a customer in the eye and say “I charge X dollars per hour my services plus a trip charge of Y for smaller jobs?” If you can, awesome. You’re all set.
If you don’t believe you can offer as much value as you’ve calculated, then you can either reduce your expenses, work more, or gain the experience required for you to charge that rate. It’s that simple.
One thing to consider is that you probably won’t always be charging by the hour and instead, you’ll charge a flat rate. This can allow you to be much more profitable as I have earned up to $175 in one hour! Testing for the profitable services as laid out in this post is highly recommended.
Like I said earlier, handyman pricing is all over the map. There is no defined way of calculating your rates since skill level and quality varies so much. If you have the confidence to charge a high rate and the customer testimonials to back it up, go enjoy your riches. You have the ability to live the life that you designed on your terms. I call that freedom.