Two electricians in the same town. Both pay themselves $35 an hour. One charges $65, one charges $90.
The $65 guy isn’t cheaper because he’s leaner. He’s cheaper because he never divided his overhead by the number of hours he actually bills. He’s running roughly $30,000 a year of truck, insurance, tools, and admin through a business that only invoices about 1,000 hours — and he’s recovering maybe half of it. The other $15,000 comes out of his own pocket, quietly, over 12 months, and shows up as “I worked all year and have nothing saved.”
That gap is the whole article. Here’s how to close it.
Your hourly rate is a fraction, and the bottom half matters more
The core calculation is simple:
Overhead per billable hour = annual overhead ÷ annual billable hours
Most contractors who attempt this get the top number roughly right and the bottom number badly wrong. They add up truck and insurance, then divide by 2,080 because that’s 40 hours times 52 weeks. Nobody bills 2,080 hours. Dividing by 2,080 when you bill 1,000 cuts your overhead recovery in half before you’ve quoted a single job.
The pricing framework gives you the three-part structure — direct cost, overhead, profit. This article is the overhead part done properly, both halves of the fraction.
Part 1: Count every dollar of overhead
Overhead is anything you pay whether or not you’re on a job site. Pull 12 months of business bank and credit card statements and categorize. Here’s a realistic solo-operator year:
| Line item | Annual |
|---|---|
| Truck payment | $7,200 |
| Fuel | $4,200 |
| Maintenance, tires, repairs | $1,800 |
| Commercial auto insurance | $2,400 |
| General liability | $1,200 |
| Tool/equipment coverage | $400 |
| Phone | $1,080 |
| Software (estimating, invoicing, accounting) | $1,320 |
| Website and hosting | $600 |
| Marketing (ads, signs, wrap, photos) | $3,600 |
| Tool replacement and small equipment | $3,000 |
| Storage unit or shop rent | $2,400 |
| Licenses, renewals, continuing ed | $900 |
| Bookkeeper and CPA | $1,800 |
| Bank and card processing fees | $1,100 |
| Dues, subscriptions, misc | $600 |
| PPE, uniforms, unbilled consumables | $1,500 |
| Bad debt (invoices you never collected) | $800 |
| Total | $35,900 |
Those are illustrative numbers, not a benchmark. Your truck might be paid off. Your insurance depends on trade, state, and payroll — the insurance basics guide covers what’s actually required versus what gets sold to you.
The lines people leave out
- Unbilled consumables. Blades, bits, caulk, tape, fasteners, shop rags, trash bags. They never make it onto an invoice. Call it $100–150 a month and stop pretending it’s zero.
- Tool replacement, not tool purchases. You don’t buy a sawzall once. You buy one every few years, forever. Budget the replacement cycle.
- Bad debt. If you wrote off $800 last year, that’s a real cost of doing business. If it’s more than about 1% of revenue, fix your invoicing and payment terms before you raise your rate.
- Card processing. At 2.9%, a business doing $180,000 is paying around $5,000 a year to get paid. Even if customers mostly pay by check, budget what you actually spend.
- Personal-card purchases. Tools bought on your personal Visa are still overhead. Go find them.
What does not go in overhead
Your own wage. Materials for specific jobs. Subs. Permits you bill through. Those are direct costs that attach to a job. Putting your wage in overhead and then calling the leftover “profit” is the most common way to double-count and still end up broke.
Count each dollar exactly once, in exactly one bucket.
Part 2: Count your real billable hours
This is where the money is. Start at 2,080 and subtract honestly.
| Hours | |
|---|---|
| 40 hrs × 52 weeks | 2,080 |
| Vacation, holidays, sick (15 days) | −120 |
| Estimates and site visits (5 hrs/wk) | −240 |
| Unbilled driving and supply runs (5 hrs/wk) | −240 |
| Admin: quotes, invoices, bookkeeping, phone (6 hrs/wk) | −288 |
| Marketing, photos, review follow-up (1.5 hrs/wk) | −72 |
| Weather, cancellations, gaps between jobs | −80 |
| Truck stocking, tool maintenance, shop time (2 hrs/wk) | −96 |
| Callbacks and warranty work | −48 |
| Actually billable | 896 |
Just under 900 hours. That’s what a 40-hour week produces for a solo operator doing his own selling, estimating, and paperwork.
If you’re thinking “I bill more than that” — you probably do, because you’re not working 40 hours. You do quotes at 8pm and invoices on Sunday. Push admin and estimating into evenings and you can get field hours up to 1,100–1,200. You just worked 50+ hours to do it. That’s a legitimate choice, but be honest about which number you’re using, because the denominator you pick determines whether your rate is real.
Note that callbacks appear here as hours, not dollars. If you also put a “warranty” line in your overhead table, you charged for the same thing twice.
Overhead per hour at different billable volumes
Same $35,900 of overhead. Only the denominator changes:
| Billable hours/year | Overhead per billable hour |
|---|---|
| 900 | $39.89 |
| 1,100 | $32.64 |
| 1,300 | $27.62 |
| 1,500 | $23.93 |
| 2,080 (the fantasy) | $17.26 |
Look at the spread. The difference between an honest 900 and a wishful 2,080 is $22.63 an hour — on a 32-hour job, that’s $724 you either collect or eat.
Putting it together: the full rate
Take the fully-loaded labor cost from the pricing article — $35/hr wage plus payroll tax and comp works out to roughly $41.30. Now add overhead and a real margin.
| 1,100 billable hrs | 900 billable hrs | |
|---|---|---|
| Loaded labor | $41.30 | $41.30 |
| Overhead | $32.64 | $39.89 |
| Break-even | $73.94 | $81.19 |
| ÷ 0.90 (10% net margin) | $82.16 | $90.21 |
| ÷ 0.85 (15% net margin) | $86.99 | $95.52 |
| Rate to quote | $85/hr | $95/hr |
That’s the honest answer to “what should I charge per hour.” Not a number from a forum. A number from your statements and your calendar.
And notice: the $65 guy from the opening is $20 an hour underwater at identical cost structure. Over 1,100 billable hours that’s $22,000 a year he hands to customers. That’s the truck, the insurance, and the retirement contribution combined.
Why adding a helper changes everything
Overhead per hour is not a fixed property of your business. It’s a function of capacity.
Say you hire one field employee. Overhead goes up — second phone, more fuel, a used van, higher comp premium — call it $48,000 total. But the employee bills close to 1,500 hours because he doesn’t do estimates or bookkeeping, while your own billable hours drop to 900 as you take on more management.
$48,000 ÷ 2,400 total billable hours = $20.00/hr of overhead.
You just cut overhead per hour by a third. That is the actual economic argument for hiring — not “more jobs,” but spreading fixed cost over more billable hours. It also means you must recompute this number every time your crew size changes. A rate set when you were solo is wrong six months after you hire, in both directions.
When the number comes out too high for your market
Your math says $95. The going rate in your area feels like $75. Three legitimate responses, in order of power:
- Raise billable hours. Going from 900 to 1,200 drops overhead from $39.89 to $29.92 — nearly $10/hr. You get there by batching estimates into two afternoons, cutting supply runs with a stocked van, and using software that kills an hour of paperwork a day. The software comparison is worth a read if quoting and invoicing eat your evenings.
- Cut overhead. Useful but weaker. Cutting $3,000 of spend at 1,100 hours saves $2.73/hr. Real, but a third of what the hours lever gives you.
- Change the work mix. Higher-ticket jobs with fewer mobilizations carry overhead better than a day of $180 service calls.
What’s not on the list: dropping your rate and hoping volume fixes it. More jobs at a losing rate is a faster path to the same ending.
Your next action
Do two things this week.
Pull last year’s bank and card statements and build the overhead table above — every line, including the personal-card tool buys. Then open your calendar and count actual invoiced field hours for the past three months. Multiply by four.
Divide the first number by the second. That’s your real overhead per billable hour, and most contractors see it for the first time and immediately understand why the year felt busy and the account stayed empty.