BUSINESS
How to Set a Break-Even Hourly Rate
Contractor method for setting a profitable hourly rate: overhead, direct cost and target profit.
Hourly rates fail when they ignore overhead. The rate you bill must cover your fixed costs, direct costs and profit — or every hour you work loses money.
THE SHORT ANSWER
How do you set a break-even hourly rate?
Divide monthly overhead by realistic billable hours and add direct cost per hour. $8,000 over 120 hours plus $15 direct gives an $81.67 break-even rate; at 15% margin, the separate target rate is $96.08.
Total your monthly overhead
Add rent, insurance, fixed payroll, software and everything you pay whether you work or not. This is the cost you must spread over your billable hours.
- List all fixed monthly costs
- Exclude direct job costs
- Include admin and marketing
- Review it quarterly
Estimate billable hours
Crew hours you can realistically bill each month — not total hours. Downtime, driving and quoting are not billable.
Separate break-even from margin
Direct cost per hour covers labor burden, materials and subs. Break-even = overhead/hour + direct cost. Then calculate the target rate separately: break-even ÷ (1 − margin). Use the Break-Even Hourly Rate Calculator.
Check against the market
If your break-even rate is above market, either bill more hours or cut overhead. Never bill below break-even for regular work.