What should I charge? Start from what you need, not what he charges

There are two ways most people answer this, and both of them are guesses.

The first is asking around. You find out what the trader down the road charges and pitch slightly under it, on the theory that being cheaper wins work. The second is looking at what your old employer billed for your time and using that, because it's the only real number you've ever seen attached to your own labour.

Neither tells you what you need to charge. They tell you what somebody else charges, and somebody else has a different van, different overheads, a different diary and possibly a different opinion about how much they'd like to earn.

The number you're after runs the other way round. Start with what you need to come out of the year with, add what the business costs to run, and divide by the days you'll actually bill. That's it — the whole method is one division. What makes it hard is that two of the three numbers are usually wrong.

You don't bill 260 days

There are 260 weekdays in a year. Almost nobody bills 260 of them.

Take four weeks of holiday and a week you lose to being ill or to a quiet spell, and you're at 235. Then take off the time that's work but isn't billable: the evening writing a quote, the morning chasing an invoice, the run to the wholesaler because the part was wrong, the afternoon looking at a job you don't win. Two days a month is a conservative estimate for most sole traders, and that's another 24 days gone.

Call it 211. That's the number your year's earnings have to come out of — not 260, and not the 235 you get to if you only count the holidays.

This is the single biggest reason new traders underprice. Dividing what you want to earn by 260 gives you a rate that's a fifth too low before you've counted a single cost, and the shortfall doesn't announce itself. It just shows up as a year that felt busy and didn't pay.

Your old boss's rate was never your wage

The second mistake is subtler and it catches good tradespeople.

If your old firm billed you out at £280 a day, that number felt like the market value of your work, and it's tempting to treat it as the ceiling you're now allowed to charge. But that £280 was paying for a lot of things that weren't your wage. It covered the van and its fuel, the insurance, the tools, the scheme fees, the office and whoever answered the phone in it, the quotes that never turned into jobs, the holiday and sick pay you took, and a margin for the owner at the end.

Your wage was a fraction of it. Possibly a third.

So the useful thing to notice is that you're now the one paying for all of it. You buy the van, you carry the insurance, you write the quotes on your own time, and nobody pays you for a fortnight in Portugal. Charging your old employer's rate isn't the greedy option — depending on your overheads it might not even be enough.

The costs come out of the same days

Everything the business spends has to be earned back across those 211 days. Most of it is predictable once you write it down: the van and the fuel, tools and replacements, insurance and scheme fees, a pension if you're paying into one, and the long tail of phone, accountant, software, workwear and parking.

Two of those get forgotten more than the rest. Pension is one, because nobody makes you pay it and its absence isn't visible for thirty years. The other is tools — not the big purchase, but the steady replacement of things that wear out and get lost, which is a real annual number and not an occasional surprise.

Write the total down. It's usually bigger than the guess, and it's the part of the rate you can actually justify to yourself.

The arithmetic, with numbers on it

Say you want to pay yourself £35,000 before tax, and the business costs £12,100 a year to run.

• Five days a week for 47 weeks is 235 working days.
• Two days a month on quotes, paperwork and supplier runs takes it to 211 billable days.
• £35,000 of pay plus £12,100 of costs is £47,100 to earn.
• £47,100 across 211 days is £224 a day — about £32 an hour on a seven-hour billable day.

Now compare that to the guess. £35,000 divided by 235 working days is £149. That's the number the back of the envelope gives you, and it's two-thirds of what you actually need. Bill all 211 days at £149 and the business takes £31,400. Take the £12,100 of costs out and you've paid yourself £19,300 — not the £35,000 you set out to earn, and a year you can't repeat.

The day rate calculator does this with your own figures. One thing worth knowing before you use it: the pay figure goes in before tax. If you need £28,000 in your pocket, the number you put in is higher than that, because income tax and National Insurance come out of it.

When the number comes out scary

It usually does, the first time. Two honest things to do with it.

The first is to treat it as a floor rather than a price list. It's what the year needs to average, not what every job has to charge. A day rate of £224 is compatible with doing a mate's job at cost, as long as you know that's what you're doing and something else makes it up.

The second is to check the inputs before you argue with the answer. If £224 looks unwinnable in your area, the fix is usually in the numbers, not the rate: more billable days by getting quoting off your evenings, lower overheads, or a target wage that was optimistic. Dropping the rate to whatever the market will bear without changing anything else doesn't solve it — it just moves the shortfall somewhere you can't see it.

What doesn't work is quietly deciding to make it up on volume. The days are the constraint. There are only 211.

Then check it against what actually happened

A rate is a plan, and plans get tested by jobs. The job that ran two days over, the one with three trips to the wholesaler in it, the one you priced keenly to get a foot in the door — those are where the average goes wrong.

The job profit calculator works backwards on a single job: what it charged, what it cost, and what your hours on it actually earned per hour. Run it on the last job that felt like hard work. If the answer is well under your day rate, that's not a reason to work faster. It's evidence for the next quote on that kind of job.

Getting the rate right is one evening with a calculator. Keeping it right is knowing, job by job, whether the price you held was the price you needed — which is the part that's tedious by hand and is what grafter.ly is for. If you're only just starting out, going self-employed as a tradesperson covers the rest of week one.