How to calculate a contractor hourly rate
A billable hourly rate has to pay for three things: the true cost of the person doing the work, a share of company overhead, and profit. The formula is:
Hourly rate = (labor cost per billable hour + overhead per billable hour) ÷ (1 − target profit %)
Overhead per billable hour is your yearly overhead divided by all the billable hours your crew sells in a year. With $250,000 of overhead and three techs billing 1,666 hours each, that’s about $50 an hour, which is often more than the wage itself.
Why dividing by (1 − profit %) matters
Adding 10% to your costs doesn’t produce a 10% profit. To keep 10% of what the customer pays, divide your costs by 0.90. It’s the same markup vs. margin difference that trips up job pricing.
Materials are priced separately
This rate covers labor, overhead and profit on labor hours. Materials and parts should carry their own markup on top. If you don’t mark up materials, overhead has to be fully recovered through the hourly rate, which is what this calculator assumes.
Check the rate against your market
If the result is well above what customers in your area will pay, the answer usually isn’t to charge less. Look at the inputs: more billable hours per tech (less drive and shop time), lower overhead per hour (more crew sharing the same overhead), or service call fees and minimum charges that recover the time between jobs. A CFO conversation about pricing often starts right here.
Common questions
How do I figure out my hourly rate as a contractor?
Start with the true cost of labor per billable hour (wage plus burden, divided by billable hours), add overhead per billable hour, then divide by one minus your target profit percentage. This calculator does each step for you.
What should a plumber, electrician or HVAC company charge per hour?
It depends on your labor costs, overhead and how many hours your techs actually bill. Two companies in the same town can have very different break-even rates, so build the rate from your own numbers rather than copying a competitor.
How many billable hours does a field tech have in a year?
Out of 2,080 paid hours, many service techs bill somewhere between 1,200 and 1,700 after paid time off, drive time, shop time and callbacks. Your timesheets and job reports will show your real number.
Should overhead be included in my hourly rate?
Yes, unless you recover it some other way, such as a material markup or trip charges. Overhead is paid whether or not techs are billing, so every billable hour has to carry its share.
This calculator gives estimates for general planning. It isn’t tax, legal, lending or accounting advice for your specific situation, and lenders may calculate figures differently.