Business pricing
Contractor Hourly Rate Calculator
Find the hourly rate needed to cover owner compensation, overhead, and a target business profit margin.
Result breakdown
How the target rate is built
Annual planning values based on your assumptions.
- Desired annual owner compensation
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- Annual business overhead
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- Annual costs
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- Billable hours per week
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- Working weeks per year
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- Annual billable hours
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- Break-even hourly rate
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- Target profit margin
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- Required annual revenue
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- Annual target profit
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- Recommended hourly billing rate
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- Optional day rate
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Margin, not markup
20% margin is not the same as adding 20% markup
Adding the selected percentage to the —break-even rate would be markup. Margin measures profit as a share of the selling price, so this calculator’s true-margin result is—.
Billable-hours impact
Hours worked ≠ hours billed
Only billable hours generate the hourly revenue used here. Time spent on estimates, travel, scheduling, callbacks, purchasing, admin, invoicing, marketing, and training still consumes the workweek but is not modeled as a separate category in V1.
Methodology
How the calculator works
Owner compensation pays the owner for their work. Business profit is what remains after the selected owner compensation and overhead are covered. They are separate planning goals.
Annual costs = desired owner compensation + annual overhead
Annual billable hours = billable hours per week × working weeks per year
Break-even rate = annual costs ÷ annual billable hours
Required revenue = annual costs ÷ (1 − target margin)
Recommended rate = required revenue ÷ annual billable hours
V1 treats overhead as one annual aggregate and uses billable hours as the key denominator. Higher target margins increase required revenue nonlinearly because true margin math divides by one minus the margin.
This calculator does not model personal taxes or owner payroll structure. Materials, subcontractors, market demand, job risk, warranties, minimum charges, and other job-specific costs may also affect the price you need to charge.
This calculator provides business planning and educational information—not tax, accounting, legal, or financial advice.
FAQ
Contractor hourly rate questions
What hourly rate should a contractor charge?
Use your own owner-compensation goal, annual overhead, realistic billable hours, and target margin. There is no universal rate that fits every contractor or market.
What is the difference between break-even rate and billing rate?
The break-even rate covers the selected owner compensation and overhead. The recommended billing rate also targets the selected business profit margin.
Why are billable hours lower than hours worked?
Estimates, travel, scheduling, callbacks, purchasing, admin, invoicing, marketing, and training may take time without directly generating hourly revenue.
Is a 20% margin the same as a 20% markup?
No. Markup adds a percentage to cost. Margin measures profit as a percentage of selling price, so the resulting rates differ.
Does this calculator include taxes?
It does not model personal income tax, self-employment tax, or owner payroll structure. Include applicable business overhead in your aggregate overhead assumption and consult a qualified professional for tax-specific questions.
Should materials be included in this hourly rate?
This V1 rate is based on owner compensation and aggregate annual overhead. Price materials and other job-specific costs separately when they are not already represented in overhead.
How many billable hours per week should I use?
Use a realistic estimate based on your own schedule and records. Do not treat every hour worked as billable.