ContractorHandbook

Contractor Hourly Rate Calculator: What to Charge

Most contractors pick a rate by asking what the guy down the road charges. This works the other way round: what you need to earn, plus what the business costs to run, divided by the hours you can honestly bill.

Hours a yearbillablenot billableTo coverwhat you pay yourselfoverhead(pay + overhead + profit) / billable hours = the rate
The rate is not a market number, it is a division. Everything the year has to pay for on top, divided by the hours you can actually sell, and the billable share is the input that moves it most.

Worked example

These are the figures the calculator opens with and the answer it gives. Change anything above and every number below moves with it.

  • What you want to earn a year85000 $
  • Annual overhead: truck, insurance, phone, office, software36000 $
  • Weeks you actually work48
  • Hours a week on the tools40
  • Percent of those hours you can bill70 %
  • Profit on top, as a margin10 %

Charge at least$100.03 per hour

Hours worked a year1,920
Billable hours at 70%1,344
Pay plus overhead to cover$121,000.00
Break even rate$90.03 /hrat this rate you make zero profit
With 10% profit margin$100.03 /hr
Day rate, 8 hours$800.26
Revenue this implies$134,444.44 a year

What this calculator assumes

  • Billable percent is the whole game. Estimating, driving, buying material, chasing payment and answering the phone are all real hours that no customer pays for. 70 percent is optimistic for a one man operation.
  • Profit is separate from your pay. Your pay is a cost of the business. Profit is what the business earns for carrying the risk, and it is what funds the next truck.

Billable hours are the number that decides everything

Forty hours a week for 48 weeks is 1,920 hours. Nobody bills 1,920 hours. Estimating, driving, buying material, invoicing, chasing payment, answering the phone, quoting jobs you do not win. Seventy percent billable is optimistic for a one man operation and 60 is more honest.

At 1,920 hours, the difference between 70 percent and 60 percent is 192 hours. If you need $120,000 to cover pay and overhead, that is a swing from $89 an hour to $104. Ten points of an assumption, fifteen dollars an hour, and it is the assumption nobody writes down.

Your pay is a cost, profit is separate

The wage you want for doing the work is a cost of the business, the same as the truck payment. Profit is what the business earns for carrying risk, and it exists on top of your pay.

If there is no profit above your wage, the business cannot replace the truck, cannot survive a slow quarter, cannot absorb the job that goes wrong, and cannot ever be sold. You have bought yourself a job, not built a company.

When the number comes out higher than the market

It usually does, and the right response is not to lower it. Either your overhead is too high for your volume, or your billable percentage is too low, or you are genuinely underpricing against the market.

The first two are fixable and the third means the market is wrong or you are chasing the wrong customers. What is never fixable is running at a rate that does not cover the arithmetic and hoping volume makes it up. It does not, it just makes the loss bigger.

Questions people ask

How much should a contractor charge per hour?

Whatever covers your target pay plus your overhead, divided by your real billable hours, with profit on top. That is a different number for every business, which is why copying the market rate is how people go broke.

What percentage of my hours are billable?

Sixty to 70 percent for most small contractors. Track it for a month before you trust a number, because almost everyone overestimates it.

Should my hourly rate include profit?

Yes, and it should be separate from your own pay. Your pay is a cost of the business. Profit is what funds growth, the next truck, and the slow month.

Need the paperwork too?

Free Contractor Estimate Template, free, no signup, PDF Word and Excel.

Common sizes, worked out

The same calculator with the numbers already filled in, one page per size, each ending in its own material list.

$40,000 a year$62.83 per hour$45,000 a year$66.96 per hour$50,000 a year$71.10 per hour$55,000 a year$75.23 per hour$60,000 a year$79.37 per hour$65,000 a year$83.50 per hour$70,000 a year$87.63 per hour$75,000 a year$91.77 per hour$80,000 a year$95.90 per hour$85,000 a year$100.03 per hour$90,000 a year$104.17 per hour$95,000 a year$108.30 per hour$100,000 a year$112.43 per hour$110,000 a year$120.70 per hour$120,000 a year$128.97 per hour$125,000 a year$133.10 per hour$140,000 a year$145.50 per hour$150,000 a year$153.77 per hour$175,000 a year$174.44 per hour$200,000 a year$195.11 per hour$250,000 a year$236.44 per hour$300,000 a year$277.78 per hour

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Labor burden calculatorTaxes, workers comp, insurance, benefits and unbillable hours, turned into the true cost of one billable hour.Overhead and profit calculatorApply overhead and profit to a job cost correctly, as margins rather than markups, and see what the common shortcut costs you.Markup vs margin calculatorMarkup and margin are not the same number.

Contractor Handbook · https://contractorhandbook.com/calculators/hourly-rate-calculator/