Your rate has to come from your numbers
Asking what other contractors charge per hour is tempting, and almost useless. Their insurance costs, truck payments, family size, and slow seasons are not yours. The only rate that reliably keeps your business alive is the one built from your own numbers: what you need to earn, what the business costs to run, and how many hours you can actually bill.
The formula has four steps: set a salary target, add your annual overhead, divide by your billable hours, and add profit. Here is how to do each one.
Step 1: Set your salary target
Start with what you want to pay yourself for a year of work, before business taxes. Be honest: this is the number that keeps your household running, and lowballing it just builds a business that underpays its most important employee. If you were good at this trade as an employee, your target should be at least what an employer would pay you, plus something for the risk you now carry.
Step 2: Add up your annual overhead
Overhead is everything the business pays for that is not tied to one job: insurance, license fees, vehicle costs, tool purchases and repairs, phone, software, advertising, accounting, and safety gear. Go through a year of bank statements and add it all up. If you are new, estimate each line generously, because first-year guesses are almost always low.
For a deeper walkthrough of what belongs in this number, see contractor overhead and profit.
Step 3: Count your real billable hours
This is where most rate calculations go wrong. A full-time year is about 2,080 hours, but you cannot bill all of them. Quoting, invoicing, supply runs, maintenance, marketing, and the gaps between jobs all eat hours that no customer pays for.
Say you work 46 weeks after vacation and sick days. That is 1,840 hours. If a third of your week goes to unbillable work, you are left with roughly 1,200 billable hours. Your number will differ, but count it honestly; pretending you bill 2,000 hours is how contractors end up busy and broke.
Step 4: Do the math, then add profit
Add salary and overhead, divide by billable hours, and you have your break-even rate, the minimum you can charge without losing money. Then add profit on top, because break-even is not a business. A hypothetical example with round numbers:
| Line | Amount |
|---|---|
| Target salary | $70,000 |
| Annual overhead | $20,000 |
| Total to recover | $90,000 |
| Billable hours per year | 1,200 |
| Break-even rate ($90,000 / 1,200) | $75 per hour |
| Profit at 20% on top | $15 per hour |
| Charge-out rate | $90 per hour |
Read the number honestly
That $90 is not a suggestion from the market; it is what this particular business needs. Run the same math with your own numbers and you may land higher or lower. Either answer is correct if the inputs are honest.
Sanity-check and use the rate
Compare your rate against reality. If it sits far above what your market will pay, the fix is not to lie to yourself with a lower number; it is to raise billable hours, cut overhead, or shift toward work that supports the rate, like flat-rate pricing on jobs you can do fast. See flat rate vs hourly pricing for when that switch pays off.
Once you have the rate, use it everywhere: multiply estimated hours by it on every quote. EstimateBook drafts itemized estimates from a voice, text, or photo description and lets you adjust quantities, prices, and a global markup before sharing the PDF, so your calculated rate flows straight into the estimate. The draft is a starting point; review the numbers before you send. For the full pricing method, how to price contractor jobs ties this rate into materials, overhead, and profit.