How much should you charge per hour?

Ask ten tradespeople what they charge an hour and you'll get ten numbers, most of them guesses. The honest answer isn't a number you pick. It's a number you calculate from what you need to earn and how many hours you can actually bill.

This guide builds your hourly rate from the ground up, then shows what to do when a customer tells you it's too high. If you haven't yet, it pairs with the bigger picture in how to price a job - the labor rate you set here is Part 1 of that whole-job formula.

Why the wage you want is not the rate you charge

Here's the mistake that keeps solo trades poor: they want to take home, say, $40 an hour, so they charge $40 an hour. Then they wonder why there's never any money left.

The reason is simple. You don't get paid for every hour you work. The hour you spent driving to the supplier, the evening you spent writing three quotes, the Saturday morning chasing an unpaid invoice - none of it is billable, but all of it is time. If you only charge for the hours you're on the tools, every unbillable hour is unpaid. Your charge-out rate has to recover a full wage across the fewer hours you actually bill.

Billable hours: you don't sell 40 hours a week

Start by being honest about how much of your week you can actually invoice. A full 40-hour week rarely contains 40 billable hours. Quoting, driving, buying materials, invoicing, and admin all take real time that no customer pays for - so the hours you can bill are only a share of the hours you put in.

How big that share is depends on your trade, your market, and how much of the back-office you do yourself. There's no universal figure, so treat it as a planning assumption you estimate for your own business, not a rule to copy. When you work it out, don't forget the things that quietly shrink the hours you can bill - or the money you actually keep:

• Unpaid leave - holidays, sick days, and any time off that doesn't pay.
• Training and licensing - courses, tickets, and renewals you sit through.
• Callbacks and warranty work - time you go back to a finished job and can't re-bill.
• Quoting and admin - estimates for jobs you won't win, invoicing, chasing payment.
• Seasonal downtime - the slow weeks every trade has, whether you like it or not.
• Bad debt - invoices that never get paid. Not lost hours, but lost income you still have to recover across the jobs that do pay.

As a planning example - not a benchmark for your business - say you reckon you can bill about 25 hours of a 40-hour week, across 48 weeks once leave and slow patches are out:

In this example, 1,200 is the number the whole rate hangs on: everything you need to earn has to be recovered across those hours, not the 1,900+ hours you actually spend working. Your own figure might be higher or lower - and that changes your rate more than almost anything else.

How billable hours move your rate

Hold your pay and overhead steady and change only the billable hours you plan for. The fewer hours you can bill, the higher every hour has to be priced to recover the same money:

Illustrative example — figures chosen to show the method, not a quote. How we source figures.

Same income target, three very different rates. This is why guessing your billable hours - or borrowing someone else's - quietly wrecks a rate. Plan them conservatively: if you end up billing more than you assumed, you're ahead; assume too many and fall short, and every job silently underpays you.

The formula: build the rate in five steps

Work it top-down, from what you need to what you charge. We'll carry the baseline figures from above - $48,000 of pay, $24,000 of overhead, 1,200 billable hours a year:

1. Set your take-home target. The annual pay you want the business to give you for your own labor. We'll use $48,000. (What that figure has to include is spelled out just below - it isn't simply the cash you pocket.)
2. Count your billable hours. Your own planning figure from above - here, about 1,200 a year.
3. Wage per billable hour. $48,000 ÷ 1,200 = $40/hr to pay yourself for your time.
4. Add overhead per billable hour. Total your yearly running costs - insurance, vehicle, fuel, phone, tools, software, licensing - and spread them across the same 1,200 hours. Say that's $24,000 a year, or $20/hr.
5. That's your cost rate. $40 + $20 = $60/hr. This is break-even on your time: charge exactly this and you've paid yourself and covered your costs, with zero profit left over.

Illustrative example — figures chosen to show the method, not a quote. How we source figures.

What "take-home target" really has to cover

"Take-home" is a loose phrase, so pin it down before you plug in a number. The target in step 1 is pay for your own labor - what the business hands you for the hours you work, before your personal income and self-employment tax. Keep it separate from the things it gets confused with:

• Business profit is not your wage. It's what the business earns above paying you, and it's added later as a margin (next step). Your pay is a cost; profit is the reward for carrying the risk of running the business.
• Owner's draw is how you physically take money out of the business. A draw usually bundles your wage and your share of profit, so "what I drew this month" isn't the same as the labor target you set here.
• Payroll and self-employment tax still come out of this figure. If you want a certain amount left after tax, set the target higher so tax has somewhere to come from.
• Benefits and retirement - health cover, a pension or retirement contribution - aren't free. If you want the business to fund them, build them into this target (or into overhead), or they come out of your own pocket by default.
• Income tax on your earnings is yours to set aside and pay; the rate you build here doesn't withhold it for you.

The rate you're building covers your labor and your overhead. Profit is the separate step, next.

Sixty dollars an hour is the floor. To get ahead you charge above it - and that gap is your profit. Add it as a true margin by dividing, not by tacking a percentage onto cost:

At $75/hr your $60 of cost is covered and $15 is profit - and $15 is exactly 20% of $75, a true margin. (Tacking 20% onto cost instead - $60 × 1.20 = $72 - leaves you just shy of it. That gap is the markup-vs-margin trap, worth five minutes in markup vs. margin.)

Four numbers people mix up

You've now built two different rates, and there are two more numbers close by. They're easy to blur together, and blurring them is how quotes go wrong:

The cost rate is the one you defend to yourself; the labor rate is the one you say to the customer. Keep those two distinct and a discount conversation never accidentally drops you below cost.

Where profit belongs: in the rate, or on the whole job

There are two places to put your profit, and they aren't interchangeable - the right one depends on what the job is made of:

• Put profit in the labor rate when the job is mostly your time - labor-only or light on materials, like service calls, repairs, and diagnostics. Here your hours basically are the job, so profit on the rate is profit on the job.
• Put profit on the whole job when materials, subcontractors, or equipment are a real share of the price. A margin that only rides your labor earns you nothing on the thousands of dollars of materials you sourced, fronted the cash for, and stand behind - so you'd undercharge for exactly the jobs with the most tied up in them. Apply the margin to the full cost instead.

The one rule that never bends: count profit once. If you've already built profit into your labor rate, don't also add a whole-job margin on top of that same labor - you'll double-count and price yourself out. Pick the home that fits the job. The whole-job version is walked through in how to price a job.

The worksheet: build your own rate

Copy or print this and fill in your own numbers. Steps A-C are what you gather; D-H fall straight out of them.

 A   Annual pay you want for your labor      $ ___________
     (before your income & self-employment tax)

 B   Annual overhead                         $ ___________
     insurance · vehicle · fuel · phone ·
     tools · software · licensing · accounting

 C   Billable hours you can plan on            ___________ hrs
     (working hours minus quoting, driving, admin,
      leave, training, callbacks, slow season)

 ──────────────────────────────────────────────────
 D   Wage per billable hour     A ÷ C          $ ___________
 E   Overhead per billable hr   B ÷ C          $ ___________
 F   COST RATE (your floor)     D + E            $ ___________

 G   Target profit margin                        ______ %
 H   RATE YOU CHARGE            F ÷ (1 − G)    $ ___________

 ──────────────────────────────────────────────────
     Minimum / service-call fee              $ ___________
     (never quote a small job below this)

Blank worksheet — your figures, your rate. How we source figures.

Loading overhead into the rate vs. charging it separately

In the build-up above we folded overhead into the hourly rate. That keeps your quotes simple: one rate, and every cost of being in business is already inside it. The alternative is to bill a lower "labor only" rate and add overhead as its own line on the job. Both land in the same place - the danger is only ever counting overhead twice (once in the rate and again as a line) or, far more common, forgetting it entirely. If your rate is just the wage you want, overhead is missing, and you're quietly funding your own business.

Sanity-check against your area, without racing to the bottom

Once you've built your rate from your own numbers, look outward - but only as a check, never as the starting point. If everyone around you charges $70–$90 and your math lands at $75, you're in the right country. If your math says $75 but the going rate is $120, you may be underselling yourself. If your math says $75 and locals charge $45, either your costs are high, your billable hours are too low, or that market is racing to the bottom and you don't want to win it on price.

The point is that competitors' rates tell you where the market sits, not what you need to charge. Anchor to your costs first, then position within the range you find.

When a customer says "that's too expensive"

It's a normal part of quoting, not an attack - and it's easiest to answer calmly when you know your own floor cold. A few honest moves, none of which mean caving on your rate:

• Adjust the scope, not the rate. If the budget is fixed, offer a smaller job to match it - fewer coats, a simpler finish, or the customer supplying materials. The rate holds; the work fits the number.
• Explain the value. "Too expensive" usually means "compared to what?" A lower quote often leaves out insurance, cleanup, warranty, or the right materials. Walk through what's included in yours so they're comparing like for like.
• Offer a real alternative. A phased approach, a good-better option, or a change of timing can meet a tight budget without pretending your costs went away.
• Know your documented floor. Your cost rate is $60, so a $75 quote has $15 of room before you reach it. A discount comes out of that room - never below the floor, because below it the job costs you money. Having the number written down turns a nervous negotiation into a clear one: you can say yes with confidence, or decline a job that simply can't work at a price that pays.

Set your rate once. Apply it to every job.

TradeReady stores your labor rate and applies it automatically every time you price a job - and can suggest a starting rate for your trade and area if you're not sure where to begin. When you price a job, you can break the hours into on-site, drive, supply-run, and setup time, so the billable hours behind your rate are counted in full rather than guessed.

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The bottom line

Your hourly rate isn't a number you pick to sound competitive - it's what falls out when you divide a real wage and real overhead across the hours you can actually bill. Build it from your own costs, sanity-check it against your market, and never let a discount push you below the cost rate you calculated. Do that and "what do you charge?" stops being a nervous guess and becomes a number you can say with a straight face.