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Contractor Labor Cost & Billable Rate Calculator

Calculate a billable hourly rate that covers labor, business overhead and your target profit margin. Free, no signup required.

Free calculator

Set a clear hourly rate

Start with the cost of one billable hour, add the business overhead it needs to recover, then use your own profit target.

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Labor cost per hour

What the worker costs your business per hour before general business overhead.

Overhead per billable hour

The share of your business expenses that each billable hour needs to recover. It can include vehicle costs, general business insurance, software, office/admin, phones, accounting, marketing and other general business expenses.

Target profit margin

Margin is the percentage of your selling rate left as profit after the costs entered above.

How to Calculate Your Contractor Labor Rate

Start with what a worker actually costs your business for one hour. Add the portion of general business overhead that each billable hour needs to recover. Then calculate a billable rate from the profit margin your business has chosen.

This tool stays at the hourly-rate level. Once you know that rate, use it with the full costs of a specific project in the Job Price & Profit Calculator.

Labor Cost vs. Billable Rate

Labor cost

Labor cost is what the worker costs the business before general business overhead. An hourly wage may be only one part of that cost.

Billable rate

A billable rate is the hourly selling rate calculated to recover labor, overhead and the target profit margin you enter.

Keep them separate

Separating these numbers makes it easier to see what an hour needs to recover before it contributes to profit.

What Is a Break-Even Hourly Rate?

Your break-even hourly rate is true labor cost plus overhead per billable hour. It is the rate that covers the costs entered here before the target profit margin is added.

How to Calculate Overhead Per Billable Hour

Divide annual business overhead by annual billable hours. The helper uses the billable workers, their average billable hours per week and working weeks per year that you enter. Billable time is time you can charge to customers, not simply time someone is at work.

Profit Margin vs. Markup

Profit margin

Margin is profit as a percentage of the selling rate. This calculator uses your target margin to determine a billable rate.

Equivalent markup

Markup is profit as a percentage of break-even cost. The result shows the equivalent markup for reference without changing the calculator into a markup mode.

Use your own target

This tool does not recommend a rate or target. It calculates from the cost and margin information you provide.

Example Contractor Labor Rate Calculation

$35 labor + $25 overhead

The break-even rate is $60 per hour.

30% target margin

$60 ÷ 0.70 produces a recommended billable rate of $85.71 per hour.

Equivalent markup

The estimated profit of $25.71 per hour is an equivalent markup of about 42.9% on the break-even rate.

Common Hourly Pricing Mistakes

Using wage as the whole cost

A wage may not include the employer costs that apply to labor in your business.

Forgetting billable capacity

Use time you can actually charge to customers when dividing annual overhead.

Mixing an hourly rate with a job price

Use this tool for the hourly rate, then calculate the complete job price separately.

Frequently asked questions

What is a billable labor rate?

A billable labor rate is the hourly selling rate calculated to recover labor, overhead and the profit margin you choose.

How is a billable rate different from an employee's wage?

A wage is one component of labor cost. A billable rate can also recover applicable labor burden, general business overhead and a target profit margin.

What costs can be included in labor burden?

Labor burden can include employer costs associated with labor, such as payroll costs, benefits, workers' compensation, or similar costs that apply to your business.

What counts as contractor overhead?

General business overhead may include vehicle costs, general business insurance, software, office/admin, phones, accounting, marketing and other operating costs.

How do I calculate overhead per billable hour?

Divide annual business overhead by annual billable hours. The helper uses the workers, billable hours per week and working weeks you enter.

Should an owner-operator include their own labor?

Use the labor cost that reflects the time and costs your business needs the work to recover. Review the result in the context of your own business circumstances.

What is the difference between markup and profit margin?

Margin is profit as a percentage of selling rate. Markup is profit as a percentage of cost. This calculator uses target margin and shows equivalent markup as a result.

Does this calculator include sales tax?

No. This calculator ends at an hourly billable rate and does not include sales tax or a customer total.

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