The worst way to answer this is the most common one: find out what the shop across town charges and sit a few dollars under it. You have just inherited their overhead, their truck payments and their mistakes. How much a contractor should charge per hour is arithmetic about your business, and it takes about twenty minutes to do properly.
Step 1: count the hours you can actually bill
A year has about 2,080 working hours. You will not bill 2,080. Take out holidays, sickness, quoting, driving, invoice chasing, supply house runs and the afternoon a job gets cancelled. Most one-truck operations land somewhere between 1,100 and 1,400 billable hours a year.
This single number is where most rates go wrong. Divide your costs by 2,080 and your rate is roughly 40% too low before you have made a penny of profit.
Step 2: add up what the business costs to exist
These are the costs that happen whether or not you work today:
- Vehicle — payment, fuel, insurance, maintenance, tyres
- Insurance — liability, workers’ comp, tools
- Licensing, bonding, continuing education
- Phone, software, accounting, bank fees
- Tool replacement — not a one-off, a yearly line
- Advertising, website, Google Business Profile management
- Any unbilled office or admin help
Call that total your overhead. For a lot of small shops it lands between $30,000 and $60,000 a year, and almost everyone underestimates it the first time.
Step 3: pay yourself before profit
Your wage is a cost, not what’s left over. Decide the number you would have to pay someone to do your job, including payroll taxes. If you only take what remains at the end, you are the business’s lender, not its owner.
Step 4: put it together
(Your wage + overhead) ÷ billable hours = your break-even rate. Then add the margin the business needs on top.
Worked example: $70,000 wage + $45,000 overhead = $115,000. Over 1,250 billable hours, that is $92/hour just to break even. For a 30% margin, divide by 0.70 — about $131/hour. If you had used 2,080 hours and skipped the margin, you would have quoted $55 and felt competitive right up until the year ended.
Sanity checks before you raise your rate
- Does the number survive a slow February? If it only works at full utilisation, it is too low.
- Are you charging for the drive on service calls, or quietly absorbing it? A trip charge is not rude, it is accurate.
- Does the rate cover callbacks and warranty work? Those hours are real and nobody pays for them.
Flat rate vs hourly
Plenty of trades quote flat prices per job rather than per hour, and homeowners generally prefer it — a number beats a meter. But the flat price still has to come from an hourly figure underneath, or you are guessing. Work out the rate first, then wrap it.
Put the rate somewhere it gets used
A rate you worked out once and keep in your head gets eroded every time you quote tired. Toolbelt prices every draft from the labour rate and materials you set, so the number you decided on in daylight is the one that goes out at 9pm.
Then read markup vs margin — getting the rate right and the multiplier wrong puts you back where you started — and how to build a price book.