Contractor Hourly Rate Chart: What to Charge to Earn What You Want
Nine target incomes against the percentage of your hours that are billable, and then the same targets against the overhead the business carries. The rate you have to charge is the crossing point.
The rate is not a market price you look up. It is an arithmetic result: what you want to earn, plus what the business costs to run, divided by the hours you can actually bill, plus whatever profit you want on top of your own pay.
Two inputs decide almost all of it. The overhead is one, because it is money out before a job starts. The billable percentage is the other, and it is the one that surprises people: at forty hours a week for forty eight weeks you have 1,920 hours, and at seventy percent billable you have 1,344 of them to sell.
Hourly rate by target earnings and billable percentage
| Target earnings | 50% billable | 60% billable | 70% billable | 80% billable | 90% billable |
|---|---|---|---|---|---|
| $40,000 | $87.96 | $73.30 | $62.83 | $54.98 | $48.87 |
| $50,000 | $99.54 | $82.95 | $71.10 | $62.21 | $55.30 |
| $60,000 | $111.11 | $92.59 | $79.37 | $69.44 | $61.73 |
| $70,000 | $122.69 | $102.24 | $87.63 | $76.68 | $68.16 |
| $80,000 | $134.26 | $111.88 | $95.90 | $83.91 | $74.59 |
| $90,000 | $145.83 | $121.53 | $104.17 | $91.15 | $81.02 |
| $100,000 | $157.41 | $131.17 | $112.43 | $98.38 | $87.45 |
| $120,000 | $180.56 | $150.46 | $128.97 | $112.85 | $100.31 |
| $150,000 | $215.28 | $179.40 | $153.77 | $134.55 | $119.60 |
The same targets, by what the business costs to run
| Target earnings | $12,000 overhead | $24,000 overhead | $36,000 overhead | $50,000 overhead | $75,000 overhead |
|---|---|---|---|---|---|
| $40,000 | $42.99 | $52.91 | $62.83 | $74.40 | $95.07 |
| $50,000 | $51.26 | $61.18 | $71.10 | $82.67 | $103.34 |
| $60,000 | $59.52 | $69.44 | $79.37 | $90.94 | $111.61 |
| $70,000 | $67.79 | $77.71 | $87.63 | $99.21 | $119.87 |
| $80,000 | $76.06 | $85.98 | $95.90 | $107.47 | $128.14 |
| $90,000 | $84.33 | $94.25 | $104.17 | $115.74 | $136.41 |
| $100,000 | $92.59 | $102.51 | $112.43 | $124.01 | $144.68 |
| $120,000 | $109.13 | $119.05 | $128.97 | $140.54 | $161.21 |
| $150,000 | $133.93 | $143.85 | $153.77 | $165.34 | $186.01 |
Break even against the rate with profit in it
| Target earnings | Billable hours | To cover | Break even | With 10% profit | Day rate |
|---|---|---|---|---|---|
| $40,000 | 1,344 | $76,000.00 | $56.55 | $62.83 | $502.65 |
| $50,000 | 1,344 | $86,000.00 | $63.99 | $71.10 | $568.78 |
| $60,000 | 1,344 | $96,000.00 | $71.43 | $79.37 | $634.92 |
| $70,000 | 1,344 | $106,000.00 | $78.87 | $87.63 | $701.06 |
| $80,000 | 1,344 | $116,000.00 | $86.31 | $95.90 | $767.20 |
| $90,000 | 1,344 | $126,000.00 | $93.75 | $104.17 | $833.33 |
| $100,000 | 1,344 | $136,000.00 | $101.19 | $112.43 | $899.47 |
| $120,000 | 1,344 | $156,000.00 | $116.07 | $128.97 | $1,031.75 |
| $150,000 | 1,344 | $186,000.00 | $138.39 | $153.77 | $1,230.16 |
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The hourly rate calculator takes your own measurements and returns the number for your job, plus the material list as a printable document. Every cell in the table above came out of that same calculator, run at build time.
Your pay is a cost, and profit is separate from it
The most common mistake in a one person trade business is treating whatever is left at the end of the month as both the wage and the profit. They are different things. Your pay is what the business owes you for the work, and it belongs in the cost of the job like anybody else's.
Profit is what the business keeps after paying everybody including you. It funds the replacement truck, the slow February, the customer who never pays and the equipment that fails. A business with no profit line is a job with extra paperwork and more risk.
Count the hours you can actually sell
A forty hour week is 2,080 hours a year before holidays, and nobody bills all of it. Estimating, invoicing, chasing payment, buying material, driving, maintaining the truck and answering the phone are all real work and none of it goes on a customer's invoice.
Fifty to sixty percent is common for a one person operation doing its own sales and admin. Seventy is good. Anything above eighty usually means somebody else is doing the office work, which is an overhead line that has to be in the other column.
Overhead is bigger than most people's list
Write it out for a year rather than estimating it: truck payment, fuel, insurance on the truck and on the business, phone, internet, software, licenses, bonds, accountant, bank fees, advertising, website, tools under the capitalisation limit, rent or the shop, and uniforms.
Then add the hours of your own time that are not billable, which you have already accounted for in the billable percentage, so do not count them twice. The number that comes out is almost always larger than the guess that went in.
A rate is a floor, not a price
What comes out of this chart is the rate below which the business does not work. It is not the price of any particular job, which also depends on the risk, the difficulty, the access, the customer and what else you have booked.
Nothing here says the market will pay it. If the number is far above what your market pays, the answer is usually overhead or billable hours rather than the rate, and that is a business problem rather than an estimating one.
Questions people ask
How much should a contractor charge per hour?
Enough to cover your target pay plus the overhead of the business across the hours you can actually bill, with profit on top. For a one person operation wanting $85,000 with $36,000 of overhead at 70 percent billable, that is about $100 an hour.
How many billable hours are in a year?
Forty hours a week for forty eight weeks is 1,920 paid hours. At 70 percent billable that is 1,344 hours you can actually invoice.
Should I charge hourly or by the job?
Most customers prefer a fixed price and most contractors make more money on one, because the efficiency gain stays with you. The hourly rate is still the number you build the fixed price from, so you need it either way.
Is my salary part of overhead?
If you work on the tools, your pay belongs in job cost rather than overhead. If you run the business and do not swing a hammer, it is overhead. Split it if you do both, which most owners of small trade businesses do.
What overhead should I use if I do not know mine?
Add up last year's bank statements for everything that was not material, subcontractors or wages on a job. That is your overhead, and it is worth an evening to get right because every rate you quote for the next year comes off it.