Overhead Per Billable Hour: The Number Every Tradesperson Needs to Know

Your hourly rate covers three things: your labor cost, your overhead, and your profit. Most contractors think about their labor. Some think about profit. Almost none properly account for overhead — and that gap is why so many busy contractors aren't making money.

What Overhead Per Billable Hour Actually Means

Every hour your business operates — whether you're on a job or not — costs money. Insurance is running. Your truck payment is running. Your phone, software, licensing, and accounting bills don't pause between jobs.

Overhead per billable hour divides your total annual overhead by the number of hours you actually bill to customers. It tells you: for every hour of billable work, how much overhead am I carrying?

Formula: Annual Overhead ÷ Annual Billable Hours = Overhead Per Billable Hour

If your overhead is $48,000/year and you bill 1,200 hours, your overhead per billable hour is $40. That $40 must be in your rate before you make a dollar of profit or take a dollar of pay.

The Billable Hours Problem

This is where most calculations go wrong. You don't bill every hour you work. Driving to jobs, quoting, ordering materials, administrative time, callbacks — none of that is billable. A contractor who works 50 hours a week might only bill 30 of them.

That ratio changes everything. If you assumed 2,400 billable hours when you set your rate but only actually bill 1,200, your overhead per billable hour is twice what you planned for. Every hourly rate based on the wrong assumption is underpriced.

Building Your True Hourly Rate

A complete hourly rate has three components stacked on top of each other:

• Labor cost — your personal hourly rate equivalent, or your technician's burdened wage
• Overhead allocation — your overhead per billable hour from this calculation
• Profit margin — what's left over after both of the above are covered

If your labor is $35/hr, overhead is $40/hr, and you want a 20% margin: your rate needs to be ($35 + $40) ÷ (1 − 0.20) = $93.75/hr minimum.

Run your actual numbers in the Overhead Per Hour Calculator to get your floor. Most contractors who do this for the first time discover they're undercharging by $15–30/hr.