Contractor hourly rate calculator
The hourly rate you need to cover your costs, pay yourself and still keep a profit, worked out from the hours you can really bill.
Short answer
Add the income you want to your yearly business costs, divide by the hours you can really bill in a year, then add your profit margin on top. Most people get the number wrong by dividing by 40 hours a week and 52 weeks.
How it works
Why most rates come out too low
The usual mistake is to take the income you want and divide by 2,080 hours, which is 40 hours for 52 weeks. Nobody in the trades bills that. Holidays, sick days, quiet weeks, quotes that do not land, driving and the office all come out of it. Thirty billable hours a week for 46 weeks is closer to what a busy one-person business really gets, and that is 1,380 hours, a third less.
The formula
- Billable hours a year = weeks worked × billable hours a week
- Break-even rate = (take-home pay + business costs) ÷ billable hours a year
- Rate to charge = break-even rate ÷ (1 − profit margin)
With the starting numbers: $70,000 take-home, $18,000 business costs, 46 weeks of 30 billable hours, and a 15% margin. Break-even is about $63.77 an hour. To keep 15% profit you charge about $75.02.
Why a profit margin on top of your pay
Your pay is what you earn for the work. Profit is what the business keeps to buy the next van, cover a slow winter or pay for the job that went wrong. If the rate only covers your pay and costs, one bad month puts you in debt.
Check your billable hours honestly
Look at the last three months. Count the hours a customer paid for, not the hours you worked. If the number is far below 30 a week, the fix may be fewer hours lost to quotes, chasing and driving rather than a higher rate. Our overhead calculator shows what those hours cost.
Common questions
Should my rate include materials? No. Price materials separately with a markup. The markup and margin calculator helps with that.
What about tax? Take-home pay here is before personal income tax. Sales tax such as GST, HST or VAT is added on top of the price and is not part of the rate.
