To set your hourly rate as a contractor, start with your fully burdened labor cost, divide it by the hours you can actually bill (not the hours you pay for), add your overhead per billable hour, then mark the total up for profit. In practice a tech you pay $30/hour usually needs to be billed out at $120–$150/hour just to hit a healthy margin. The gap isn't greed — it's burden, overhead, and the simple fact that no one bills 100% of their day.
This guide walks through the exact build-up with real numbers, shows why billable efficiency quietly destroys margins, and gives you a formula you can drop into a spreadsheet today.
Why Your Wage Is Not Your Rate
The single biggest pricing mistake in the trades is charging a rate that's "a few dollars over what I pay the tech." Your wage is just the starting line. Three things sit on top of it before a dollar of profit shows up:
- Labor burden — payroll taxes, workers' comp, insurance, PTO, and benefits typically add 20–40% on top of the base wage. We break this down in detail in our guide to calculating your labor burden rate.
- Overhead — rent, trucks, fuel, software, office staff, advertising, and every other cost that isn't tied to a single job.
- Billable efficiency — the share of paid hours that turn into invoiced hours. This is the number that surprises most owners.
Key takeaway: You pay a tech for 2,080 hours a year, but you only bill a fraction of them. Your rate has to recover the full cost across the hours you actually sell.
The Billable Hours Problem
A full-time technician is on the clock roughly 2,080 hours a year (40 hours × 52 weeks). But drive time, restocking, callbacks, training, waiting on parts, and admin all burn paid hours that never hit an invoice.
How bad is it? According to ServiceTitan, many shops treat 30% billable efficiency as normal and 50% as excellent — meaning a tech on an 8-hour day may only produce around 2.4 billable hours. Better-run operations land closer to 60–70%. Either way, you're recovering your costs over far fewer hours than you pay for.
| Billable efficiency | Billable hours/year | Cost spread over |
|---|---|---|
| 30% | 624 hrs | Very few hours — rate must be high |
| 50% | 1,040 hrs | Moderate |
| 65% | 1,352 hrs | Efficient shop |
| 80% | 1,664 hrs | Best-in-class |
The Hourly Rate Formula
Here's the build-up in four steps. It works for any trade — HVAC, plumbing, electrical, or landscaping.
Charge rate = (Burdened labor cost per billable hour + Overhead per billable hour) ÷ (1 − target net margin)
Notice the last step divides by (1 − margin) rather than adding a markup percentage. That's the difference between markup and margin, and mixing them up is a classic profit leak — see markup vs. margin for contractors if that trips you up.
A Worked Example
Let's price one technician at a shop running 65% billable efficiency.
- Base wage: $30/hour
- Burden at 40%: fully burdened cost = $42/hour
- Hours paid: 2,080/year → annual burdened labor cost = $87,360
- Billable hours: 2,080 × 65% = 1,352 hours
Now spread the costs over billable hours:
- Burdened labor per billable hour: $87,360 ÷ 1,352 = $64.61
- Overhead: say $60,000/year attributable to this tech → $60,000 ÷ 1,352 = $44.38
- Break-even per billable hour: $64.61 + $44.38 = $108.99
At break-even you make nothing. Add a target of 15% net margin:
$108.99 ÷ (1 − 0.15) = $128.22/hour
So the $30/hour tech needs a billed rate near $130/hour. That lines up with real-world trade labor rates, which commonly run $75–$150/hour depending on trade and market. You can run these numbers instantly with our free margin & markup calculator.
Bump billable efficiency from 50% to 65% and your break-even rate drops by roughly 20% — efficiency is often a bigger lever than raising prices.
Hourly Rate vs. Flat Rate
Calculating a solid hourly rate matters even if you quote flat-rate prices, because your flat-rate book is built on an accurate hourly cost underneath. The rate you just calculated is the foundation; flat-rate pricing simply packages it into a fixed number the customer sees. For the trade-offs between the two, see flat rate vs. time and materials.
One Rate Rarely Fits Every Tech
The formula above prices a single technician, but most shops shouldn't publish one blanket rate. A senior lead on $38/hour with 70% efficiency has a very different cost basis than a second-year apprentice on $22/hour who bills 45% of their time. If you charge the same rate for both, you either overprice the senior tech's work or bleed money every time the apprentice is on a job.
A practical approach is to run the build-up for each pay tier — apprentice, journeyman, lead — and set a rate band for each. Then your dispatching decisions actually map to your pricing: sending a cheaper tech to a simple call protects margin, and reserving your high earners for complex work keeps their higher rate justified. This is also why blended shop averages can be dangerous; they hide which crews are profitable and which are quietly subsidized.
How Often Should You Reprice?
At minimum, rebuild your hourly rate once a year, and any time a major input jumps: a wage increase, a workers' comp renewal, a fuel spike, or a software price hike. Overhead creeps up quietly, and a rate you set two years ago is almost certainly underwater today. Owners who reprice annually treat their rate as a living number tied to real costs — not a figure they picked once and defended forever. A current price book makes this a five-minute update instead of a dreaded overhaul.
Common Mistakes That Sink Your Rate
- Using paid hours instead of billable hours. Dividing costs by 2,080 instead of 1,352 understates your rate by a third or more.
- Forgetting overhead entirely. If overhead isn't in the rate, it comes straight out of profit.
- Adding a flat "markup" to margin. A 15% markup is not a 15% margin. Always divide by (1 − margin).
- Never revisiting the number. Wages, insurance, and fuel move every year. Reprice at least annually.
Keeping every trade, tech, and material cost current is exactly what a master price book is for — that's the problem Pricebookr is built to solve, syncing your rates and markups straight into Jobber so quotes stay profitable without the spreadsheet gymnastics.
FAQ
What is a good hourly rate for a contractor?
There's no universal number — it depends on your wages, burden, overhead, and billable efficiency. For most skilled trades, billed labor rates fall between $75 and $150 per hour, but the right rate is whatever recovers your fully burdened cost plus overhead and leaves a 10–20% net margin.
How do I calculate my billable hours?
Start with paid hours (about 2,080 per full-time tech per year), then multiply by your billable efficiency — the share of paid time that becomes invoiced work. Many shops run 50–70%, so a tech may bill 1,000–1,450 hours a year even though you pay for 2,080.
What's the difference between labor burden and my hourly rate?
Labor burden is your cost to employ a tech — wage plus taxes, insurance, and benefits. Your hourly rate is what you charge, which stacks overhead and profit on top of the burdened cost and spreads it across billable hours only.
How much should I mark up my rate for profit?
Set a target net margin (commonly 10–20% in the trades) and divide your break-even rate by (1 − margin). For a 15% margin, divide by 0.85. Avoid simply adding a 15% markup — that yields a smaller margin than you intended.
Should I charge hourly or flat rate?
Either works, but both rely on an accurate hourly cost. Flat rate hides the number from the customer and rewards efficiency; time-and-materials bills the actual hours. Build your hourly rate first, then decide how to present it.