- Enquiry
- Quote
- Agree
- Work
- Invoice
- Paid
What Your Time Costs
Almost every small firm quotes a rate higher than the one it earns, and the difference is not waste — it is the hours nobody charges for.
For a software-side reference alongside this discussion of pricing, labour cost, and small-business finance, Monitask has this resource.
The hours that are not billed
Quoting. Site visits, writing quotes, following up on quotes that go nowhere. On a firm winning one job in three, two thirds of that effort is unrecovered.
Travel, unless you charge it explicitly.
Buying and collecting materials, which on a material-heavy job is a substantial half-day nobody itemises.
Administration. Invoicing, chasing, records, tax, the phone.
And the work you did not charge for — the accommodations that seemed too small to bill.
Together these routinely account for a third to a half of a working week, and none of it appears on an invoice.
The arithmetic
Take one month.
Total hours worked, honestly — including evenings spent on paperwork.
Total invoiced in that month.
Divide. That is your actual rate.
Compare it to the rate you quote. The gap is the answer to why a firm that is busy at a good rate is not making what it should.
Most people doing this for the first time find the real figure is between half and two thirds of the quoted one, and the shock is useful rather than discouraging: it is not a sign of doing badly, it is a sign of measuring for the first time.
What to do with the number
Price from it rather than from the quoted rate.
If you need to earn a given amount per productive hour and only sixty per cent of your hours are productive, the quoted rate has to reflect that. The alternative is working the difference for nothing, which is what most firms do.
Or reduce the unbilled hours, which is the other lever and is frequently easier.
Quoting fewer, better-qualified jobs. Declining earlier. Charging for site visits where the market allows. Batching materials collection. An invoicing slot rather than invoicing when you remember.
The record that makes this possible
You cannot do the arithmetic from memory.
A note per job of hours worked — rounded, not precise — and what it invoiced. In the same file as everything else.
Three jobs in you have an average. Ten jobs in you can price by type, and knowing that a particular kind of work always takes forty per cent longer than it looks is worth more than any rate calculation.
The costs that are not hours
A rate has to carry more than your time.
Tools, replacement and repair. A van, its fuel, its insurance and its eventual replacement. Insurance, licensing, professional subscriptions. Phone, software, accountancy.
And the time you are not working: holiday, illness, and the weeks when the work does not come. A self-employed person quoting a rate based on fifty-two working weeks is quoting a rate they cannot live on, and the usual honest figure is closer to forty-four.
Add these up annually, once, and divide by the productive hours you calculated above. That is the floor — the number below which the work costs you money to do.
What the floor is for
Not for quoting. For refusing.
A price below the floor is a loss dressed as a job, and knowing where the floor sits is what makes it possible to decline without agonising.
Above the floor, the price is a commercial decision — what the work is worth, what the risk is, what the market bears — and the floor plays no part in it.
Confusing the two produces cost-plus pricing, which is a separate problem and leaves money on the table on every job where the value exceeded the cost.
What this is not
Not an argument for charging more, necessarily. It is an argument for knowing.
Some firms find their real rate is fine and their problem is volume. Some find the opposite. Both are useful and neither is available without the number.
And not a reason to bill for everything. Some unbilled work is a deliberate investment — in a relationship, in a reputation, in a job you wanted. Deliberate is the operative word, and it requires knowing what it costs.
Doing it again
Once is diagnostic. Twice a year is a habit worth keeping.
Rates drift, costs rise, and the proportion of unbilled hours changes — usually upwards, as a business takes on more customers and therefore more administration.
A firm that recalculated three years ago is pricing from a picture that has moved, and the direction it moves in is rarely favourable.
Twenty minutes, twice a year, using the notes you already keep.
The trap in charging for everything
A firm that discovers its unbilled hours sometimes responds by billing all of them, and that goes badly.
Customers do not expect to pay for quoting, and a line for it on an invoice reads as opportunistic even where the cost is real.
The recovery belongs in the rate, not in itemised extras. The hours are a cost of doing business and the price has to carry them, in the same way it carries insurance and the van.
Where a specific activity genuinely can be charged — a survey, a diagnostic visit, a design — say so before attending rather than inventing it afterwards.
The short version
- The rate you quote and the rate you earn differ by the hours nobody charges for
- Quoting, travel, materials collection, administration and unbilled accommodations routinely take a third to a half of a week
- Take one month: total hours honestly, total invoiced, divide — that is your actual rate
- Most people find the real figure is between half and two thirds of the quoted one, which is a sign of measuring rather than of doing badly
- Two levers: price from the real number, or reduce the unbilled hours, and the second is frequently easier
- Keep a note per job of hours and invoice; ten jobs in, you can price by type, which is worth more than any rate calculation
For broader background on pricing, labour cost, and small-business finance, see DocuSign.