Billable Hours and Your Income Goal: The Two Numbers Behind Your Rate
Rate advice usually starts with the rate. Yours has to start with how many hours you can sell, and what the year must earn before tax takes its share.
Most advice on what to charge starts with the rate, which is the last number in the chain. The rate is just a division: what the year must earn, divided by the hours you can sell. Get those two inputs right and the rate is arithmetic. Get them wrong and no amount of pricing technique will save the year — the tool at the end of this page will produce a confident, wrong number.
The hours you can actually sell
Three different hour counts get confused constantly: hours you're open, hours you work, and hours you can bill. Only the last one pays. Everything between them is real work with no invoice attached to it, and it has to be paid for out of the hours that do have one.
- Estimating and quoting — including the quotes that never turn into work, which is the honest reason a healthy quote-to-win ratio is never 100%.
- Material and supply runs, including the time spent waiting at a counter.
- Driving between jobs, and the first and last drive of the day.
- Invoicing, chasing payments, bookkeeping, and the annual conversation with an accountant.
- Marketing: the website, the truck lettering, the calls you answer while you're on a ladder.
- Rework and callbacks — always unpaid, sometimes the single biggest block.
- Holidays, sick days and the occasional day that goes nowhere.
A worked year makes the size of the gap concrete. Assume 48 working weeks at 40 hours, then apply an honest non-billable share:
| Line | Calculation | Hours |
|---|---|---|
| Weeks worked | 52 − 4 weeks of holidays and time off | 48 |
| Hours worked | 48 × 40 | 1,920 |
| Billable share | 60% — the rest is quoting, driving, admin, rework | × 0.60 |
| Billable hours in the year | 1,152 | |
| Billable hours per week | 1,152 ÷ 48 | 24 |
Twenty-four billable hours a week. If your pricing assumes forty, every rate you've calculated is about 40% too low — 1,920 ÷ 1,152 = 1.67 — and no job will ever show you why, because the missing hours never appear on a job cost at all. They sit in the gap between the hours you work and the hours you bill.
What the year has to earn
The second number is what the business must bring in: the income you need plus the expenses the business carries before you're paid anything. Two clarifications matter, because both are routinely glossed over.
- Expenses here are the business's costs, not the job's. Materials and sub payments come out of job revenue and are already priced into the work; what belongs in this figure is insurance, vehicle costs, tools, software, accounting, licensing — the costs that exist whether or not you're busy.
- Income is stated before your personal tax, because the business pays you a gross amount and the tax comes out afterwards. If you plan in take-home terms, gross it up: pre-tax goal = take-home ÷ (1 − effective tax rate).
On the gross-up: your effective rate is the total personal tax you pay divided by your total income — not your marginal bracket. Someone in a 22% bracket often has an effective rate closer to 15%, because brackets apply in layers and deductions come off the top. This is exactly the kind of number to get from your accountant once and use for the year, rather than re-deriving from a website.
The floor, and what to do when the market won't pay it
Divide what the year must earn by the hours you can bill and you have your floor: the rate below which the business loses money on your time. On the worked year above, with a $65,000 pre-tax income goal and $18,000 of business expenses, that's $83,000 ÷ 1,152 = $72.05 an hour. It is a floor, not a target — it contains no growth, no slack for a slow quarter, and no profit beyond your own pay.
The useful moment is the one after you calculate it, when you compare it with what your market actually pays. If the floor is above the going rate, you have four honest options, and none of them is charging below the floor and hoping: bill more of your hours (cut the admin, batch the supply runs, quote faster), cut business expenses, raise prices and risk losing the price-sensitive work, or change the mix toward work that pays more per hour. The tool exists to tell you which of those is necessary.
Set your hourly floor from your own income goal and billable hours →
The three numbers to revisit every year
- Billable hours — from your own logged time, not from a 40-hour assumption.
- Overhead per billable hour — your fixed costs divided by the hours that have to carry them; the overhead calculator does it in a couple of minutes.
- Burdened labor cost — for anyone on a payroll, the wage plus taxes, comp, benefits and non-billable time. It changes whenever comp rates or benefits do.
Those three numbers feed every price you set — job quotes, flat rates, and the break-even count that tells you how many jobs the month needs. They're worth an hour a year, which is less time than a single underpriced job takes to earn back.
Turn your fixed costs into an overhead rate per billable hour →
Frequently asked questions
How many billable hours does a solo contractor really have?
Fewer than the calendar suggests. Start from the hours you actually work, subtract holidays and time off, then subtract everything that isn't billable work: quoting, material runs, travel between jobs, invoicing, chasing payments, bookkeeping, marketing and rework. What's left is your billable capacity. A solo operator who works 40-hour weeks for 48 weeks and bills 60% of that time has about 1,150 billable hours in the year — roughly 24 billable hours a week, not 40.
What share of my time should be billable?
There is no universal figure, and anyone quoting one is guessing about your business. It depends on your trade, how far you drive, and how much admin you do yourself. A solo operator doing their own quoting, ordering and bookkeeping will sit well below a crew-based business with an office handling those tasks. The number that matters is yours, and the way to get it is to log your hours honestly for two weeks: tag each half-hour block billable or not, then divide.
Should my income goal be before or after tax?
The hourly-rate calculator asks for a pre-tax figure, because that's what the business has to pay you to leave you with the rest. If you think in take-home terms, gross it up with your own effective tax rate: pre-tax goal = take-home goal ÷ (1 − effective rate). At a 25% effective rate, a $60,000 take-home goal needs about $80,000 before tax. Use your accountant's effective-rate estimate, not a number from a website — including this one.
How often should I recalculate my hourly floor?
At least once a year, and immediately after anything that moves a big input: a fuel or insurance increase, a hire, a rate rise, a change in how much driving the work involves, or a new recurring cost. A floor calculated two years ago is a floor for a business that no longer exists.
Tools for this
Ready to run the numbers?
Open the Hourly Rate Calculator and apply this guide with your own figures.
Open the Hourly Rate Calculator →