Start with a loaded hour
Base pay is compensation for productive work, not the business's profit. Labor burden covers applicable employer costs. Overhead recovers the general cost of staying open. Use realistic billable hours when converting period overhead to an hourly amount.
Add margin without confusing it with markup
With $62 of loaded hourly cost and a 30% target margin, the required rate is $88.57. The $26.57 difference is 30% of the selling rate, not 30% of cost.
Pressure-test the result
- Use productive billable hours rather than every paid or calendar hour.
- Keep materials, permits, subcontractors, and unusual risk outside the hourly rate when they belong directly on a job.
- Check minimum charges for travel, setup, purchasing, and short appointments.
- Compare estimates with completed-job results and update the inputs regularly.
Questions people ask
How do I calculate a contractor hourly rate?
Add base pay or owner compensation, hourly labor burden, and overhead per realistic billable hour. Divide that loaded hourly cost by one minus the target margin.
Should overhead be included in an hourly rate?
If the business expects billable work to recover general operating costs, allocate a reasonable share of overhead to each billable hour or use another consistent driver. Do not count the same cost twice.
Is the calculated rate a local market rate?
No. It is a cost-and-margin result from your inputs. Compare it with local demand, capacity, positioning, taxes, and professional advice before setting a final customer price.