Effective Hourly Rate Calculator
A job can pay $85 an hour on site and still earn you $50 once the quoting, the supply run and the drive home are counted. Enter the job's revenue, costs and hours — both the paid and the unpaid ones — and see the effective hourly rate your year actually lives on.
Method and content reviewed October 1, 2026 · formulas checked against a test suite · runs entirely in your browser
Effective rate = (Revenue − Total cost) ÷ (On-site hours + Unbillable hours)($3,200.00 − $1,852.00) ÷ (24 + 6) = $44.93/hrA rate that only divides by on-site hours flatters every job. The effective rate is the one your year actually lives on — compare it against the floor from the Hourly Rate Calculator, not against another contractor's sticker price.
Carpentry: where the number comes from
A solo carpenter finishes a $3,200 deck repair: 24 hours on site at a $38 burdened cost, $900 of lumber and fixings, $40 of fuel — plus the quoting visit, two supply runs, travel and invoicing that add up to 6 unpaid hours. (Illustrative example — use your own hours.)
| Input | Value |
|---|---|
| Job revenue | $3,200 |
| On-site hours | 24 hrs × $38 cost |
| Materials | $900 |
| Vehicle / fuel | $40 |
| Unbillable hours | 6 hrs (quote, runs, travel, invoicing) |
| Target rate | $60/hr per total hour |
Result: $44.93/hr effective — $56.17 on site, and below the $60/hr target
Six unpaid hours cut the rate by $11.24 — almost 20%. The job still clears a healthy margin, but at the $60 target it needs a price of $3,652 ($60 × 30 hrs + $1,852 of cost) or fewer unpaid hours. Judged on the on-site rate alone, it would have looked like a win.
Load this example into the calculatorThe calculation
| Labor cost | 24 × $38 = $912.00 |
| Total cost | $912 + $900 + $0 + $40 = $1,852.00 |
| Gross profit | $3,200 − $1,852 = $1,348.00 (42.1% margin) |
| Rate per on-site hour | $1,348 ÷ 24 = $56.17/hr |
| Total hours | 24 + 6 = 30 |
| Effective hourly rate | $1,348 ÷ 30 = $44.93/hr |
How this calculator works
Every result comes from the formulas below — the math shown is the math used. Change any input and results update instantly in your browser; nothing is sent to a server.
- Total job cost:
Total Cost = (On-site Hours × Hourly Cost) + Materials + Subs + VehicleUse your burdened hourly cost, not the bare wage — the Labor Burden Calculator computes it. - Gross profit:
Profit = Revenue − Total Cost - Rate per on-site hour:
On-site Rate = Profit ÷ On-site HoursThe flattering number most people quote. - Effective hourly rate:
Effective Rate = Profit ÷ (On-site Hours + Unbillable Hours)Quoting, pickups, travel, cleanup and invoicing produce no revenue but take real hours — the effective rate divides by all of them. - Gross margin:
Margin % = Profit ÷ Revenue × 100
What the result means
The effective rate divides the job's gross profit by every hour the job takes from you — on-site work plus the quoting, pickups, travel and invoicing it causes. The gap between it and the on-site rate is what the unpaid time costs; the final row judges the job against the per-hour target you set.
When to use it
Use it on any job you can repeat — maintenance contracts, service calls, similar installs — to find which kinds of work actually pay per real hour, and which just look busy.
Want the concept behind the math in depth? Read Effective Hourly Rate: What Your Hour Actually Pays After the Unpaid Work or Billable Hours and Your Income Goal: The Two Numbers Behind Your Rate.
Common mistakes
- Counting only on-site hours — that's the flattering number, not the effective one.
- Costing your hours at $0: your time has a real cost even when no payroll runs.
- Judging jobs by margin instead of by effective rate — a fat margin on a small, trip-heavy job can pay less per hour than a thin one on a dense day.
Frequently asked questions
What is an effective hourly rate?
It's the job's gross profit divided by every hour the job takes from you — on-site work plus the quoting, material runs, travel, cleanup and invoicing it causes. It's the honest counterpart to the rate per billed hour, which divides by on-site hours only and always looks better than reality.
Why is my effective rate so much lower than my hourly price?
Because unpaid time is invisible in the price. A $3,200 job that costs $1,852 earns $1,348: across 24 on-site hours that's $56.17/hour, but across 30 real hours — including 6 of quoting, runs and travel — it's $44.93. The six unpaid hours cut the rate by $11.24 without any invoice ever showing it. Jobs with lots of trips, small scopes or heavy admin have the biggest gaps.
Which hours should I count as unbillable?
Every hour this job causes that no invoice pays for: the estimate, the pickup runs, driving between site and supplier, cleanup beyond what you bill, photos and invoicing, and any rework. If you're unsure, log the hours honestly for one job — most owners are surprised by the total, which is exactly why the effective rate is lower than expected.
How do I raise my effective hourly rate?
Four levers, in order of impact: charge more for the same hours (see the Price Increase Calculator), cut the job's direct costs, shrink the unpaid time (batch pickups, charge for travel, quote faster), or take jobs of a similar kind in the same area so trip time collapses. Raising hours worked with the same rate doesn't raise the rate at all — it just buys more of it.
How does this differ from the Hourly Rate Calculator?
The Hourly Rate Calculator works from the year backwards: income goal plus expenses divided by billable hours — it sets the floor your rate must clear. This one works from a single job forwards: what that job actually paid per real hour. Use the floor to judge the job, and the effective rate to judge which jobs deserve more of your year.
If the effective rate came in below target, raising prices is the lever that adds profit without more hours.
Price a raise that holds →Related tools and guides
Effective Hourly Rate Calculator is part of RateCraft, a set of free pricing and estimating tools for contractors and service businesses. Results are calculated entirely in your browser and are estimates for planning purposes — see our disclaimer and methodology.