How to Set Your Hourly Rate as a Contractor

The most common pricing mistake for a new contractor is charging close to what they made working for someone else. That wage did not have to cover a truck, tools, insurance, or the hours spent driving, quoting, and billing. Your rate does.

Step 1: Add up a year of costs

• Truck and fuel. Payment, insurance, gas, and repairs.
• Tools and equipment. New tools, replacements, and repairs.
• Insurance and licenses. Liability, workers' comp if you have help, and renewals.
• Phone, software, and office. The small monthly bills add up.
• Taxes. Self-employment tax comes out of your pocket now.

Step 2: Decide what you want to take home

Pick the yearly pay you need to live on. Add it to your yearly costs. That total is what your billable hours have to earn.

Step 3: Count only the hours you can bill

You will not bill 40 hours every week. Driving, estimates, buying materials, weather days, and paperwork eat time. Be honest about how many hours a year you will actually charge for. Divide the total from step 2 by that number. That is your break-even hourly rate.

Step 4: Check it against your market

Look at what other contractors in your trade and area charge. If your number is far below, you are leaving money on the table. If it is far above, look for costs to cut or hours you can bill better. Do not price yourself out of work, but do not work for free either.

Charge for materials separately

Your hourly rate is for labor. Materials go on their own lines, usually with a markup to cover the time you spend buying and hauling them. That keeps your rate honest and the bill easy for customers to read.

EZ Invoices starts you with line items for your trade, so labor and materials stay on separate lines, with markup on materials built in. Try it with your new rate on a real job.