Price off your own costs, not off what the guy down the road charges or what you earned as an employee. The reliable method is cost-plus: add up what the job truly costs you (labor, payroll burden, materials, and a slice of your overhead), then add a profit margin on top. Most contractors who go under were busy the whole time. They just priced too low to survive it. Here is how to not be one of them.
Why "what everyone charges" is a trap
There is no national rate for any trade, and copying a competitor's number is guessing with extra steps, because you have no idea what their costs or overhead are. Worse, pricing off your old hourly wage as an employee will bankrupt you, because as an employee your boss was quietly paying for your taxes, insurance, truck, tools, downtime, and profit. Now that is all on you.
That is why a tradesperson who was paid, say, $33 an hour as an employee needs to bill the customer roughly three times that to end up in the same place. That multiple gets quoted a lot and rarely gets shown, so here it is, built up one step at a time from $33:
| Step | Rate | Why |
|---|---|---|
| Employee wage | $33 | What landed in your pocket per hour worked |
| Plus the employer's share | $41 | Payroll taxes, workers comp, the half your boss paid |
| Spread over billable hours only | $57 | You are paid for 187 days, not 261, so the same money has fewer hours to come out of |
| Plus overhead | $80 | Van, fuel, tools, insurance, phone, software, licensing |
| Plus 15% profit | $94 | Profit is the business's, not your wage |
$33 to about $94 is 2.8 times, and not one step of it is greed. Every line is something an employer was quietly paying that now has your name on it. Change the overhead assumption or the billable days and the multiple moves, which is exactly why you build it rather than borrow it. Run yours in the Day Rate Calculator.
The four things every price has to cover
- Labor. The actual hours, at what you need to earn.
- Payroll burden. On top of wages, budget roughly 25 to 30% for the employer's share of taxes, workers' comp, and any benefits. This applies to you too once you are the business.
- Materials. At your real cost, and mark them up (more on that below).
- Overhead. Your truck, fuel, tools, insurance, phone, software, licensing, and the hours you spend quoting and doing paperwork that nobody pays you for directly. For a small contractor this commonly eats 25 to 50% of revenue. It is real money and it has to be built into every job.
Add those four up and you have your cost. You are not done. Cost is break-even. Break-even is not a business.
Then add profit, and know margin from markup
Profit is a separate line on top of cost, not a warm feeling you get if the job goes well. A common target is 15 to 20% net profit after everything.
Here is the mistake that quietly kills contractors: markup and margin are not the same number. If a job costs you $1,000 and you add 20% markup, you charge $1,200, but your profit margin is only about 16.7%, because the $200 is a slice of the bigger $1,200. To actually keep a 20% margin, you divide by 0.8 and charge $1,250. Get this wrong on every job and you are quietly working for less than you think all year. When in doubt, work in margin (divide by [1 minus your target]), not markup.
Day rate and materials, quickly
- Day rate. Take what you need to earn in a year, add your overhead and the burden, and divide by the days you can actually bill. It is never 250 days, and here is roughly where 250 goes:
| Days | |
|---|---|
| Weekdays in the year | 261 |
| Holiday you actually take | -15 |
| Public holidays | -8 |
| Illness, family, van off the road | -6 |
| Quoting, invoicing, chasing, buying | -25 |
| Weather and gaps between jobs | -20 |
| Days you can actually bill | 187 |
Those subtractions are the argument, not the exact figures. Yours will differ, and the point is that you have to make them. Price off 250 days when you can bill 187 and every day rate you quote is 25% too low, whatever else you got right. That single line is why busy contractors go broke.
- Materials markup. Marking up materials 15 to 25% is standard and fair. You carry the cost, the risk of waste, the running around, and the warranty. Passing materials through at cost is a gift you cannot afford to give.
Do not look for a benchmark. Build the number.
There is a strong pull towards finding out what everyone else charges and working back from it. Resist it, and not only for the reason above. Rates do vary by state and by metro, sometimes a lot, but a rate somebody quotes you on a forum comes with none of the things that produced it: his overhead, his van, his crew, his insurance, whether he is paying himself properly, whether he is still trading next year.
What actually settles the question is your own arithmetic, and there is a tool on this site that does it: the Day Rate Calculator. It takes your target take-home, your vehicle and tool costs, insurance, federal and state tax, self-employment tax, cover for the weeks you are ill, and the days you will not be working, and it gives you the day rate those add up to. That number is yours and defensible. A benchmark is somebody else's number with the workings hidden.
Use Working in Your State for the state rules that change your costs: licensing, workers comp, sales tax on materials, prevailing wage on public work.
Common questions
How much should a contractor charge per hour?
There is no national hourly rate for any trade, and copying one off a forum is how contractors go broke. Your rate has to cover your labor, payroll burden, materials, and a share of your overhead, then add profit on top, so it depends entirely on your costs and your market. Build the number from your own costs first. The Day Rate Calculator does that build-up for you, from your take-home target through tax, overhead and the days you cannot bill. Never start from someone else's number.
Should I match a competitor's lower price?
No. Matching a competitor's price means pricing off numbers you cannot see, their costs, their overhead, and their mistakes. A lower bid is often a contractor who forgot to include payroll burden, overhead, or profit, and they may not be in business next year. Price off your own costs, then decide if the job is worth doing at your number. Winning a job that loses you money is worse than not winning it.
Why do busy contractors still go broke?
Because being busy is not the same as being profitable, and most contractors who fail were working the whole time. They priced off their old employee wage or a competitor's number, forgot to cover payroll burden and overhead, or confused markup with margin, so every job quietly lost a little money. Volume then multiplies the loss. The fix is pricing every job from your true costs plus a real profit margin, not chasing more work at a losing price.
What profit margin should a contractor aim for?
A common target is 15 to 20% net profit, meaning what is left after every cost including your own wage is paid. Profit is a separate line on top of your costs, not whatever happens to be left over if the job goes well. Watch the markup-versus-margin trap: a 20% markup only leaves about a 16.7% margin, so to keep a true 20% margin you divide your cost by 0.8. Your real numbers are yours, so run them rather than trusting a rule of thumb.
The honest bit
- The burden, overhead, and profit ranges here are typical for small US contractors, but yours are yours. Run your real numbers.
- Local rates vary by state, metro and trade, and this guide gives no figure for that spread because we hold no trade rate data that would support one. Build your number in the Day Rate Calculator and use Working in Your State for the state rules that change your costs.
- This is general business guidance, not accounting advice. A CPA who knows the trades will pay for themselves here.
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