Subcontractor Hourly Rates

I was asked recently my opinion on what a good hourly rate for a subcontractor might be. I politely declined to answer, before providing a full lecture on why! It is something people talk about often…. In the same way that people discuss what is a good square meter rate for a new build, or what is everyone else charging as margin. My advice – is don’t fall down this rabbit hole.

EVERY business is different, some have big overheads, some have very few. Unless you know the intricacies of how someone operates, never ever assume what their hourly rate, or what their markup could or should be.

Dealing With The Fall Out

1. Markup is defined as the profit plus the offsite overheads that is individual to each company. It is not market lead…. as in, there is no such thing as charging 10% on top and crossing your fingers, you will come out badly without knowing if it is enough to run the company. If you are the consumer, surely you want to work with someone you know can pay their bills?

2. The hourly rate charged may or may not include overheads…. So, someone might think they are getting a deal because one guy is $20 cheaper an hour than the next but actually the difference will be that the difference is more than made up for during billing when one contractor adds on overheads, and the other more expensive one does not. How often is it asked what the overhead or margin costs are when discussing hourly rates with a subbie? Rarely!!

3. Hourly rates and minimum charge out rates are different…. Subcontractor jobs can be very small so often minimum charge or call out rates may apply, both of which really screw up anyone trying to standardise or derive average sub-contractor hourly rates.

Too much emphasis

Don’t get me wrong, from a procurement and estimation perspective I completely understand the desire to find average rates for labour for sub-contractors.

However, the danger in putting too much emphasis on it is that it can start to sway that industry into thinking that is what they MUST charge, and it takes them away from actually completing the math to come up with their labour charge out rate themselves based on their own circumstances.

The fallout from that? Sub-contractors undercharging unknowingly and becoming a liability to the builders and homeowners they are working with as they cannot make their books work despite having work on.

Bottom line – IF you are discussing average rates, don’t get too attached to them and definitely don’t be surprised if the actuals come in all over the place, because depending on each subs circumstances they really should.