How to Set a Billable Hourly Rate for Your Contracting Business
Build your rate from your numbers — wage or owner pay, labor burden, billable vs paid hours, overhead, and target net margin on price — not from what the competitor posts on a van. This guide teaches the model; the free calculator does the math.
Open the billable hourly rate calculatorWhy most rates end up too low
- The 2080 myth — dividing annual pay by 2,080 and calling that a bill rate skips burden, non-billable time, overhead, and profit.
- Ignoring utilization — you get paid for travel, estimating, and admin that customers never see on an invoice.
- Markup treated as margin — adding 20% to cost is not the same as a 20% profit margin on price.
None of this is coaching about “what you should charge.” It is the cost-up chain every BillRateHQ rate tool uses.
Same formula as below — interactive inputs on BillRateHQ
The five building blocks
1. Desired pay or tech wage
What you want to earn (owner-operator) or what you pay a W-2 tech before burden. Enter hourly or annual in the calculator — it converts with your paid hours/year.
2. Labor burden
Employer costs on top of wage (payroll taxes, workers’ comp, benefits, PTO, and similar). Enter your own % — UI labels are examples, not tax advice. Deep-dive: how to calculate labor burden and the labor burden calculator.
3. Billable vs paid hours (utilization)
Utilization = billable ÷ paid. If you pay for 40 hours and bill 28, utilization is 70%. The calculator does not recommend a target — enter what your books show.
4. Overhead allocated to billable hours
Annual fixed costs (rent, trucks, software, insurance portions not in burden, marketing) divided across billable hours. Leaving overhead at $0 understates the rate.
5. Target net margin on price
Profit as a share of the sell price — not markup on cost. Confused? Use the markup vs margin calculator.
The formula (matches the P1 calculator exactly)
Do not use cost × (1 + margin) when margin means profit share of price. That is markup math with a different answer.
Mini worked example (fictional)
| Input | Value |
|---|---|
| Wage | $30/hr |
| Burden | 30% |
| Paid hours | 2,080 |
| Utilization | 60% |
| Annual overhead | $60,000 |
| Target margin | 15% |
Annual wage $62,400 → burdened $81,120 → billable hours 1,248 → labor/bh ≈ $65.00 → OH/bh ≈ $48.08 → break-even ≈ $113.08 → bill rate ≈ $133.04/hr. Run your numbers in the tool.
Run your numbers in the calculator →Common mistakes
- Dividing salary by 2080 and calling it a bill rate
- Treating markup % as margin %
- Assuming 100% utilization
- Leaving overhead at $0
- Copying a competitor’s rate without a cost stack
When to use job pricing instead
An hourly rate is a rate-card building block. A full bid with materials, contingency, and trip time belongs in the job pricing calculator — which can accept your bill rate via handoff without double-counting overhead on labor.
Trade presets
HVAC, cleaning, and painting owners can start from trade landers with editable example inputs — still the same engines, not market rate advice: HVAC hourly rate, cleaning pricing, painting job pricing.
FAQ
Billable vs paid hours?
Paid hours are what you compensate. Billable hours are what you invoice. Utilization connects them.
Is burden the same as overhead?
No. Burden sits on wage (employment add-ons). Overhead is shop/truck/software/etc. Keep them separate to avoid double-counting. See the labor burden guide.
Margin vs markup?
Margin is profit ÷ price. Markup is profit ÷ cost. Same profit dollars, different percentages. Use markup vs margin to convert.
Owner-operator vs W-2 tech?
Same chain. Owner-operators often enter desired annual pay; shops enter tech wage. Toggle in the calculator.
How does this connect to job quotes?
Pass the bill rate into job pricing for materials and extras, or use cost-up mode with loaded labor instead.
Does this include materials?
No — this guide and the P1 tool are labor bill rate. Materials belong on job pricing or separate markup lines.
Calculate your billable rate
Self-serve math only — no consulting, custom estimates, or coaching.
Open contractor hourly rate calculator →