How to Calculate Your Contractor Hourly Rate
Learn a practical contractor hourly rate formula with examples of overhead, billable hours and profit margins.
Pricing a service business starts with knowing what it costs to operate. Your billable hourly rate needs to cover business expenses and leave room for profit.
Step 1: Estimate your annual costs
Include vehicle expenses, equipment, insurance, software, administrative costs and the compensation you need from the business. Avoid counting the same cost twice.
Step 2: Estimate realistic billable hours
Not every hour worked can be billed to a customer. Travel, quoting, administration, maintenance and downtime reduce billable capacity.
Step 3: Calculate your break-even hourly rate
Example: If annual costs are $90,000 and you expect 1,200 billable hours, your break-even rate is $75 per hour.
Step 4: Add your target profit margin
If you want a 20% profit margin on revenue, divide the break-even rate by (1 − 0.20). In this example, $75 ÷ 0.80 = $93.75 per hour. This is an illustrative calculation, not a market rate recommendation.
Step 5: Test against real jobs
Check your assumptions against travel time, job complexity, equipment use and customer demand. Revisit your inputs as costs change.
Make the math easier
Use the free Contractor Hourly Rate Calculator to explore your own operating costs and target rates.
Download Free Calculator