Free tool · Built by a construction accountant
What should you actually charge per hour?
Most contractors set their rate by asking what the guy down the road charges. This works it out from your own numbers instead — wages, burden, the hours nobody pays you for, and the overhead that has to come out of every invoice before you keep a dollar.
The four costs that get left out
Every underpriced job I have ever looked at missed at least one of these.
Hours nobody pays for
You pay for 2,080 hours and bill maybe 1,500. If you divide costs by paid hours instead of billable hours, every rate you set is roughly a quarter too low before you start.
Labor burden
Payroll taxes, workers' comp, paid leave contributions and benefits. In construction this routinely adds twenty to forty percent on top of the wage, and workers' comp alone can be brutal depending on your class code.
Overhead with nowhere to go
Trucks, fuel, tools, insurance, bond, phone, software, the office, your own admin time. None of it is billed to a job, so it has to be recovered inside your hourly rate or it comes out of profit.
Markup mistaken for margin
Adding twenty percent to your cost does not give you a twenty percent margin. It gives you 16.7%. Over a year of jobs that gap is a truck payment.
What belongs in overhead
Overhead is any cost that does not change when you win or lose one specific job. If you can't bill it to a job number, it belongs here.
- Vehicles and fuelTruck payments, insurance, fuel, maintenance, trailer registration.
- Insurance, bond and licensingGeneral liability, commercial auto, your CCB or L&I registration and surety bond, professional dues.
- Tools and small equipmentAnything not charged to a job: replacement hand tools, blades, bits, batteries, consumables.
- Office and adminShop or yard rent, utilities, phones, software, bookkeeping and tax prep, the hours you spend quoting and chasing money.
- Getting the workWebsite, advertising, vehicle lettering, estimating time on jobs you didn't win.
Markup is not margin
Margin is profit as a share of the price. Markup is what you add to cost to get there. They are never the same number, and confusing them is the most common pricing error in the trades.
| If you want this margin | You must mark cost up by |
|---|---|
| 10% | 11.1% |
| 15% | 17.6% |
| 20% | 25.0% |
| 25% | 33.3% |
| 30% | 42.9% |
| 35% | 53.8% |
| 40% | 66.7% |
Markup = margin ÷ (1 − margin). Read it the other way and a 20% markup leaves you a 16.7% margin.
Oregon & Washington
Two states, two sets of burden
Oregon
Employer contributions to Paid Leave Oregon, state unemployment, the statewide transit tax and workers' comp through SAIF or a private carrier all land in your labor burden. CCB licensing and your surety bond sit in overhead.
Washington
L&I workers' comp is charged per hour worked by risk classification rather than as a flat percentage of payroll, so convert it to a per-hour figure before you fold it in. Paid Family & Medical Leave and unemployment are on top.
Working in both
If crews cross the river, the same employee carries a different burden rate depending on which side of it they are standing on. Rates set off a blended average quietly lose money on one side.
Questions
Is this the rate I charge the customer, or what the job costs me?
It is the rate you charge for labor. The break-even line above it is what an hour costs you once burden and overhead are covered. Anything you bill between those two numbers keeps the lights on without paying you for the risk of being in business.
Why divide by billable hours instead of paid hours?
Because you only get to recover costs on hours a customer pays for. The non-billable hours still happened and still cost you, so their cost has to be carried by the hours you do bill. That single adjustment is usually worth ten to fifteen dollars an hour.
What billable percentage is realistic?
For a field employee with paid holidays and vacation, seventy to seventy-eight percent is a normal range once drive time, shop time and callbacks are honestly counted. Owner-operators who also quote, order and invoice are often closer to fifty or sixty.
Does this replace job costing?
No. This sets the rate you go to market with. Job costing tells you whether the rate held up on the work you actually did. You need both, and the second one is where most of the money hides.
My rate came out higher than anyone around here charges.
That is usually the real finding. It means either your overhead is carrying something it shouldn't, your billable percentage is worse than you thought, or your competitors are undercharging and don't know it yet. All three are worth knowing before you bid the next job.
Do the numbers I type here get sent anywhere?
No. Everything runs in your browser. Nothing is submitted, stored or sent.
Want someone to check the inputs?
A Books Checkup is a fixed-fee review of your books by an accountant who works only with contractors. You get your real overhead number, your real billable percentage, and a list of what your books are currently hiding.
Get a Books Checkup — $75Other calculators
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Open the calculator →This calculator is a planning tool, not tax or legal advice. Burden rates, insurance classifications and state contribution rates change and vary by employer — confirm yours against your own payroll records and policies before pricing work.