How to calculate your billable hourly rate
Ask ten contractors how they set their hourly rate and nine will tell you what the shop down the road charges. That is not pricing, it is following — and it is the main reason a business can be busy all year and still have nothing left at the end of it. Your rate has to cover the wage, the burden on that wage, the hours nobody pays for, the overhead of running a company, and the profit that makes the risk worth taking. This guide works through each of those in order, with the numbers a small trades business actually faces.
Start with the fully burdened wage
A technician at $28 an hour does not cost $28. Payroll taxes, workers’ compensation, health contributions and paid time off typically add 30 to 50 percent — and in roofing, tree work or excavation, where comp rates run high, considerably more. General liability is usually rated on revenue rather than payroll, so keep it in overhead instead. Get the burden wrong and everything downstream is wrong with it.
Then subtract the hours nobody pays for
Of 2,080 paid hours a year, a field technician bills perhaps 1,350 to 1,550. The rest is drive time, shop time, training, warranty callbacks and waiting. Your overhead has to be recovered across billable hours only, not across all of them.
Add overhead, then profit
Rent, vehicles, software, the person answering the phone, advertising — divided by billable hours, that is your overhead per hour. Profit comes on top of that, not out of it. A margin taken from overhead is not a margin.
Sanity-check against the market, do not start there
Once you have a rate built from your own costs, compare it locally. If it is far above the market, your overhead or your billable ratio is the problem — not the rate. Cutting the rate to match simply hides the issue until it becomes fatal.
Common questions
- What billable ratio should I expect?
- Sixty-five to seventy-five percent is a common range in field service. Below 60 percent, look at drive time and scheduling before you look at pricing.
- Should apprentices bill at a lower rate?
- Their cost is lower, so their rate can be — but the overhead recovery per hour stays the same.
- How often should I revisit this?
- At least annually, and whenever insurance or wages move noticeably.