Ask ten contractors how they set their hourly rate and nine will tell you some version of "it's about what everyone around here charges." It's the most natural way to price and it's backwards. The competition's rate is the last number you should look at, because it's built on their costs, their overhead, and their tolerance for working cheap — none of which are yours.
A billable rate that actually works gets built from the bottom up, in three layers.
Layer one: your labor cost
Start with what an hour of the work actually costs you. For a tech, that's their wage plus payroll taxes, workers' comp, and benefits — usually a good bit more than the hourly wage on the check. For an owner-operator, it's what you've decided your time is worth as a wage, before the business makes a dime. Call it your labor cost per hour.
Layer two: overhead per hour
This is the layer that gets skipped, and skipping it is why shops stay busy and broke. Total up a year of running costs — truck, fuel, insurance, tools, phone, licensing, software, accounting, and the unpaid hours spent quoting and invoicing — and divide by the hours you actually bill in a year. Not the hours you work. The hours you bill. The gap between those two is bigger than most owners think, which is why the real number lands high.
If you're on the clock 2,000 hours a year but only 1,200 of them are billable — the rest is driving, quoting, and paperwork — then a full year of overhead has to be recovered across those 1,200 hours, not 2,000. Divide by the wrong number and every hour is underpriced.
Layer three: profit
Cost plus overhead only gets you to break-even. Profit is the layer on top that lets the business grow, absorb a bad month, and eventually be worth something. Decide the margin you want the business to earn and build it in on purpose — it does not show up by accident.
Stack it up
Put a real example on it. Say your labor cost runs $45 an hour, and you've done the math and your overhead is $95 an hour across your billable time. That's a $140 floor before a cent of profit. Layer a healthy margin on top and you're looking at a service-call rate around $200 and a continuous rate a bit below it — which, not by coincidence, is right where a lot of well-run shops land.
The competition's rate isn't your answer. It's their guess at their own costs.
Split it if it helps — a higher first-hour service rate to get the truck to the door, a continuous rate for the hours after. However you split it, the overhead has to be riding inside every hour, or the split just hides the hole.
Set your rate once. Let the tool defend it.
Dead Hand carries your service, continuous, and overhead rates on every quote — so the floor you built is always in the number, even at the kitchen table.
Get Dead Hand