How to Calculate Your Charge-Out Rate in 2026: Pricing Guide With a Worked Example

Pricing is the decision that affects every other number in your business. Get it right and wages, rent, super and your own pay are covered with something left over. Get it slightly wrong and you can be flat out, fully booked and still going backwards. The most common pattern we see isn't businesses charging far too little. It's businesses charging a rate that was right two or three years ago, while wages, super, insurance and software have all moved on.

This guide shows you how to calculate a charge-out rate from your real costs, with a full worked example, and how to check it against utilisation, margin and discounts. It also covers pricing models, health and NDIS pricing, GST, and how to raise prices without losing good clients. Run your own numbers with our free pricing and margin calculator as you go.

Why pricing needs a fresh look in 2026

• Wage costs are higher. The super guarantee is 12%, award rates rise each July, and under Payday Super that super now leaves your account with every pay run.
• Card surcharges are changing. The card surcharge ban from 1 October 2026 means many businesses can no longer pass card fees on separately, so those costs need to sit inside your prices. See how to reprice for the surcharge ban.
• Overheads keep creeping. Insurance, rent, software subscriptions and professional fees rarely go down.
• Customers compare more. AI assistants and comparison sites make it easier for customers to shop around, which rewards businesses that can explain their value, not just their rate.

If you haven't recalculated your rates in the last twelve months, there's a good chance your margin has quietly shrunk.

The charge-out rate formula

A charge-out rate is the price you charge per hour of someone's time. It needs to cover three things: the cost of that person, their share of the business's overheads, and a profit.

Each part needs real numbers:

• Full yearly cost of the person: wage, super, leave loading, WorkCover, payroll tax if you're above the threshold, equipment and training. Our guide to employee costs walks through it, and the employee cost calculator does the maths.
• Share of overheads: rent, software, insurance, vehicles, marketing, accounting and admin wages, divided across the people who bill.
• Billable hours: paid hours, less leave and public holidays, multiplied by a realistic utilisation rate. This is the input owners most often overestimate.
• Target net margin: the profit you want left after every cost, including a fair wage for yourself.

Worked example: pricing an employee's time

Let's price the time of a full-time team member on a $75,000 salary in a business with three people who bill clients and $120,000 a year of overheads. These figures are illustrative; substitute your own.

Notice how far the answer is from the employee's wage of about $38 an hour. A business charging $90 for this person's time would feel busy and productive, and lose about $14 on every hour billed. That's the "busy but broke" pattern in a single line of maths.

Pricing your own time as the owner

Owners often leave themselves out of the calculation, or price their own time at the same rate as the team. Your time should carry your market wage, and because owners spend more time on admin, sales and management, you usually bill fewer hours.

If your rate is well below this, it doesn't automatically mean you should double it tomorrow. It means your profit is lower than it looks, your own pay is being subsidised by your team's margin, or both. That's exactly the kind of gap a monthly review should surface.

How utilisation changes the rate you need

Utilisation is the share of available hours that actually gets billed. It has a bigger effect on pricing than almost any other input, which is why a few empty appointments a week matter so much.

Two lessons sit in that table. First, if your utilisation is lower than you assumed, your real margin is lower than your price suggests. Second, improving utilisation, through better rostering, fewer cancellations or less unbilled admin, can do as much for profit as a price rise. Track it monthly; our guide to management report metrics shows how.

Markup vs margin: the mistake that costs the most

Markup is profit as a percentage of cost. Margin is profit as a percentage of price. They are not the same, and mixing them up is one of the most common pricing errors we see.

If you add 20% to your costs, you get a 16.7% margin, not 20%. Always work from margin: divide cost by one minus the margin you want.

What a discount really costs

Discounts feel generous and cheap. They're neither. Because a discount comes straight off your profit, a small cut in price needs a large increase in volume just to stand still.

A 10% discount at a 30% margin means doing half as much work again for the same profit. If you want to reward loyal clients, consider adding value (a priority booking, a review call, an extra deliverable) rather than cutting price.

Choosing a pricing model

Whatever the model, your charge-out rate is still the foundation. A package price is just an estimate of hours multiplied by your rate, plus a buffer for the unexpected.

Second example: pricing a fixed-fee package

Fixed-fee packages are popular with clients because they know the cost upfront. They only work for you if the price is built from your charge-out rate, with a realistic allowance for the parts of the job that always take longer than planned. Here's how to price a package, using the $130 an hour rate from the worked example.

Two things make a package profitable over time. First, a written scope that says exactly what is included and what costs extra, so the job doesn't quietly grow. Second, tracking the actual hours on every package for the first few months. If the real average is 19 hours, not 16, the package needs repricing or the process needs tightening. Your management reports should show you which.

Common pricing mistakes

• Pricing from competitors instead of your costs. Their costs, team and margins aren't yours. Check the market, but start from your own numbers.
• Assuming 100% utilisation. Nobody bills every paid hour. Using paid hours instead of billable hours underprices every service.
• Leaving out the owner's wage. If your pricing only works because you don't pay yourself properly, it doesn't work.
• Confusing markup and margin. Adding 20% to cost gives a 16.7% margin.
• Never reviewing rates. A rate that was right in 2023 is probably too low after award increases, 12% super and higher overheads.
• Discounting by habit. Small regular discounts can wipe out a large share of your profit.

Pricing for dental, allied health and NDIS providers

Health businesses have extra constraints, but the same maths applies.

• Price per appointment, not per hour on the clock. A 45-minute consultation often comes with notes, reports and follow-up. Price the whole block of time, not just the face-to-face minutes.
• NDIS price limits. For NDIS-funded supports that are agency-managed or plan-managed, providers generally can't charge above the price limits in the NDIS Pricing Arrangements and Price Limits. Check the current limits, which change regularly, and make sure your cost per billable hour fits underneath them. Self-managed participants can negotiate.
• Medicare and private health. Rebates don't cap your private fees, but they shape what patients expect to pay out of pocket. Review your gap and communicate it clearly.
• Cancellation fees. A clear, fair cancellation policy protects utilisation. NDIS has specific short-notice cancellation rules, so follow them.
• Dental treatment plans. Material and lab costs move with suppliers, so review item fees and lab mark-ups at least yearly.
• GST. Most health services are GST-free when provided by a recognised professional and generally accepted as necessary, but products and some services aren't. Price those separately.

See our allied health, dental and NDIS bookkeeping pages for more on practice-specific setup.

GST, materials and products

• Work out every rate excluding GST. If you're registered and the service is taxable, add 10% on top when quoting. GST is the ATO's money, not part of your margin.
• Price materials separately with a markup that covers ordering, storage, wastage and the risk of defects, not just the supplier invoice.
• Include payment costs. Card and payment platform fees are a cost of doing business. With the surcharge ban, build them into your prices.

When and how to raise your prices

Most owners wait too long to raise prices, then do it all at once and worry about losing clients. Small, regular, explained increases work much better.

When you raise prices:

• Give clear notice, usually around 30 days.
• Explain it simply. Most clients understand wage and cost increases.
• Remind them of the value: results, response times, expertise.
• Apply it consistently, and update Xero items, quote templates and booking software on the same day.

Our blog post on raising prices without losing clients has sample wording.

Track whether your pricing is working

A price is a hypothesis until your reports confirm it. Set up Xero so you can see profitability by service or job, using tracking categories or job costing, and look at it every month. The numbers to watch are gross margin by service, effective hourly rate (revenue divided by hours actually worked), utilisation and discounts given.

Margin and pricing reviews are often where we add the most value for clients, and by reviewing management reports and suggesting better ways of operating, we've found clients up to $30,000 a year in savings. If you'd like a second set of eyes on your pricing, book a free call. You can also download our pricing health check from the pricing and margin calculator page, and read our guide to gross vs net profit margin.