Guide to Determining Your Hourly Rate
There is not a one-size-fits-all solution when it comes to pricing a painting project. Your company is unique, and therefore you need to understand what price is right for your business.
To do this, you would need to know what costs your business has and how much profit you would like to make. One of the easiest and most accurate ways of doing this is by:
Understanding the hourly rate you need to charge (including or excluding materials)
Using this with a production rate estimating system. Learn more >
When you follow this approach, you'll gain valuable insights into the project's duration, ensuring accurate production planning. It'll also help you set the right pricing to ensure consistent profitability for your company.
Step 1: Average hourly direct labor wage
This is the average price paid per hour to your production team for the project. This should include employer contributions for payroll taxes, employment insurance, paid time-off, and any other benefits that would apply to the wages of the people doing the work.
It, however, does not include any other staff that are not directly producing the project (such as sales, admin, and management)
1. List all your painters and how much you pay them per hour.
2. Take the average of these rates to find your average hourly rate.
As an example, your company has 3 painters with varying skills, responsibilities, and wages:
Name | Wage/hour |
Jake | $18.50 |
Sam | $22.00 |
Anna | $24.00 |
Total | $64.50 |
Average Wage = Total hourly wages for # of painters
$64.50 / 3 = $21.50/hr
The average wage for this company is $21.50 per hour
Step 2: Average paint and sundries (P&S) spend per hour
This is the amount you are paying per hour on average for paint and sundries (small tools, supplies etc). You can include this in your hourly wage or add paint and sundries on a project-to-project basis.
To get this number, you will need to consult your financial statements.
1. Take your P&S spend for the longest period you have accurate historical financial information for.
2. Divide that by the number of hours worked by your painting team (only painters producing projects) in that same period.
For example, in the last 3 months, you spent $13,932 on P&S. Your painters worked 1,440 hours in that period.
So, you will divide $13,932 by the 1,440 hours your painters worked in the year, which gives you an average of $9.68/hour spent on paint and sundries.
Step 3: Average overhead cost per hour
⚠️ To do this calculation, refer to your financial statements for the same period you used to calculate your paint and sundries average hourly rate.
This calculation will give you the total cost per hour you need to charge to cover your overhead.
1. Start by combining all of your overhead costs - including payroll for all staff that are not directly involved in the production of the projects (management, sales, admin), and everything but painters’ wages, paint, and materials. This could be insurance premiums, rent, loan payments, marketing, vehicles, owner pay, etc.
2. Divide that number by the total hours your painters worked in that period.
Using the example above, this is what the calculation will look like over a 3 month span - the same period used in the previous calculation.
3 Months Overhead Spend Expenses: $32,508
Hourly Overhead Rate = Expenses / Total hours worked
$32,508 / 1,440 = $22.58
Your overhead hourly rate is $22.58 per hour
Step 4: Profit margin %
The profit markup refers to the amount of profit you would like to make from your work. This is an important number as every business must make a profit to operate successfully.
1. Decide on the amount of profit you would like to make.
2. Find your all-in hourly rate by adding all of the hourly rates you've calculated so far and dividing by 1 .
3. Then, subtract the percentage of profit you wish to make.
For this example, we will use a 10% profit margin
In this example, we will use a 10% profit margin.
All-in Hourly Rate = (Average hourly wage + P&S hourly rate + Overhead hourly rate) / (1- 0.10)
= ($21.50 + $9.67 + $22.58) / (0.90)
Your all-in hourly rate is $59.72 per hour
Final Thoughts
Pricing painting projects can feel tricky since, ultimately, it’s both an art and a science. However, once you understand the basis for your hourly rate, you can start to feel confident with the prices you charge for your projects.
Now that you have broken down your hourly rate from your company’s historical information, it will give you the chance to make adjustments as your business grows, seasons change, and for any other factors that affect your business.
Pair this hourly rate with a production rate estimation system and PaintScout, and you will be able to build consistently priced painting estimates you can trust and get the profit you deserve.