How it works
Use the result as a checked starting point.
Forty hours worked is rarely forty hours billed. Estimating, travel, callbacks, collections, maintenance, and administration reduce sellable capacity. A sustainable rate begins with realistic billable hours.
Enter the annual pay the business must support, annual overhead, and hours you can actually invoice. The result separates break-even from the rate required to achieve your selected margin.
Break-even rate = annual cost target ÷ billable hours. Selling rate = break-even rate ÷ (1 − target margin).
Estimating checks
- Base billable hours on the last 12 months when possible.
- Include owner compensation as a cost before profit.
- Use a higher rate or fixed pricing for unusually risky work.
Common questions
Why not divide by 2,080 hours?
Because most contractors cannot bill every paid working hour. Using 2,080 often understates the required rate.
Is owner pay the same as profit?
No. Owner compensation pays for labor or management; profit is the return earned after costs.
Can I use this for employees?
Yes, but replace owner pay with the annual loaded labor cost you need to recover.