SHOP RATE CALCULATOR

What should I charge per hour as a contractor?

There is no table that answers this, and any page that gives you one is guessing about your shop. What there is, is a way to work it out from four things you already know: what you pay, what employing somebody costs on top of that, what the business costs to run, and how many of the hours you pay for you actually get to sell.

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A $28 wage is not a $28 hour

Take a three-person crew paid $28 an hour, 40 hours a week, 52 weeks, with 15 paid days off. That is 2,080 paid hours each, of which 120 are holidays and vacation. Say a fifth of the hours actually worked go on drive time, loading, estimating, and putting right the job that came back. That leaves 1,568 billable hours — a 75% billable share, which is a reasonable year, not a bad one.

Now add what that person costs beyond the wage:

Wages, 2,080 h at $28$58,240
Payroll taxes, comp and liability at 20% of wages$11,648
Benefits$4,800
Truck, fuel, phone, small tools$9,600
Cost of employing one person$84,288
Divided by 1,568 billable hours$53.76 / h

That is a 92% labor burden, not the 20–30% usually quoted. Both figures are honest; they answer different questions. Twenty per cent is taxes and insurance as a share of wages. Ninety-two per cent is what has to be added to the wage so that the hours you sell pay for the hours you don’t.

Overhead: on cost, not on revenue

Overhead is what you would still be paying next month with nothing booked — owner and office pay, the yard, software, accounting, insurance, marketing, licences. It has to be recovered through the work, and there are two ways to express it.

A profit-and-loss statement puts overhead over revenue. Bidding arithmetic — including every trade bid calculator on this site — applies an overhead rate to a job’s direct cost. The two are different numbers for the same business, and using the smaller one where the larger is wanted under-recovers overhead on every job you price.

For the crew above, with $92,000 of annual overhead and $432,864 of direct cost — three people at $84,288 plus $180,000 of materials and subs — the overhead rate on direct cost is 21.3%. Over the revenue it implies, the same overhead is about 15%.

Then, and only then, the margin

Cost per billable hour, plus overhead, gives the break-even hour: $53.76 × 1.213 = $65.18. Below that the hour loses money before anybody has been paid a profit.

Margin is taken as a share of the price, so you divide rather than multiply. At a 12% target net margin, $65.18 ÷ 0.88 = $74.07 an hour. Marking the cost up by 12% instead would give $73.00 and a margin of 10.7% — the margin-versus-markup mix-up, costing about a dollar an hour, every hour.

Which number is doing the damage

When the rate comes out higher than the market seems to bear, the instinct is to cut the margin. It is almost never the margin. In this arithmetic the sensitive number is the billable share: at 65% rather than 75%, the same crew’s break-even hour rises to about $76. Ten points of utilization moves the rate further than the entire target margin does.

That is the argument for measuring it. The rest of these inputs come off a payroll report and an insurance declarations page. The billable share is the one you have to observe, and it is the one that decides the price.

And what the rate you charge today is earning

Everything above works forwards: your year, then the rate it needs. Most contractors arrive with the answer already filled in — there is a number on last week’s quote — and the useful question runs the other way. Suppose the crew above charges $70 an hour against the $74.07 the year requires. That is not a catastrophe and it is not fine either, and the three ways of saying so are worth separating.

Charged$70.00 / h
Net margin it actually earns on labour6.9%, not 12%
Short, per billable hour$4.07
Over a year, across three crew$19,137
Billable hours that would make $70 right1,659 h (80%)

The last row is the one that is hard to get at any other way. A rate is not simply too low; it is too low given a billable share. At $70 an hour this shop would need each person to sell 1,659 hours a year — 80% of every hour it pays for, against the 75% it actually gets. Whether five points of utilization is available is a question about scheduling and estimating time, and it is a real alternative to raising the price. When the required hours come out above the hours anybody actually works, that alternative is gone and the gap is in the rate.

The calculator does this comparison from your own figures: type what you charge into the optional field, and the result says the margin it earns, the size of the gap over a year, and the billable share it would take to justify it. Leave it blank and nothing changes — it alters none of the arithmetic above.

What this page is not

This is not a price list, a wage survey, or a statement of what work is worth in your area. It is not tax, accounting, insurance, or legal advice, and it makes no determination about how anybody should be classified or paid. The percentages above are illustrative inputs, not benchmarks — workers’ compensation rates in particular vary by trade and state by more than any other figure here, and belong to your own declarations page rather than to a rule of thumb.

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Common questions

What should I charge per hour as a contractor?

There is no table that answers this, because the number is made of your payroll, your vehicles, your overhead and the share of paid hours you actually bill. Work it as cost per billable hour, add overhead as a percentage of direct cost, then divide by one minus your target net margin. On a $28 wage with a 75% billable share, a small crew commonly lands between $65 and $95 an hour.

What is labor burden and what does it include?

Labor burden is everything you pay to employ somebody beyond the wage itself: employer payroll taxes, workers' compensation, liability insurance charged on payroll, benefits, and the truck, fuel, phone and small tools that person needs. The figure that matters for pricing also spreads paid but unbillable hours — holidays, vacation, drive time, estimating, callbacks — over only the hours you sell.

Why is my labor burden higher than 30%?

The 20–30% figure usually quoted counts only taxes and insurance as a percentage of wages. It does not account for the paid hours that are never billed. If you pay for 2,080 hours and bill 1,568 of them, a quarter of the wage bill has to be recovered inside the hours you do sell, which typically pushes the real burden past 60%.

Is overhead a percentage of revenue or of cost?

Both are used and they are not interchangeable. A profit-and-loss statement expresses overhead as a share of revenue. Bidding software, including the calculators on this site, applies an overhead rate to a job's direct cost. Using the revenue figure where the cost figure is wanted under-recovers overhead on every job.

What is the difference between margin and markup?

Margin is a share of the price; markup is added to the cost. A 10% margin on a $10,000 price is $1,000 of profit. A 10% markup on $10,000 of cost gives a $11,000 price and $1,000 of profit, which is a 9.1% margin. Quoting a margin and pricing a markup is a common and expensive mix-up.