The maths, explained
A busy diary does not guarantee that an hourly rate recovers annual costs. This model multiplies the cost per paid hour by paid hours, adds the allocated annual overhead, and divides by billable hours. The second result adds your target margin. It helps test utilisation scenarios before pricing work; it is not an automatic price list for every trade or contract.
Break-even hourly rate = (labor cost per paid hour × annual paid hours + annual overhead) ÷ annual billable hours; target rate = break-even ÷ (1 − target margin)
A worked example
The worked example below uses the calculator’s initial inputs and the same calculation function as the live interface. Replace example amounts with your own records; changing currency does not convert the numbers. Physical reference dimensions are stored in metric units, and the interface can display their imperial equivalents. Rounded display values may differ slightly from the full precision retained in the calculation.
| Your inputs | Editable example — not a market quote |
|---|---|
| Direct labor cost per paid hour (USD) | 35 |
| Annual paid hours | 2,080 |
| Annual billable hours | 1,450 |
| Annual allocated overhead (USD) | 45,000 |
| Target profit margin (%) | 20 |
| Break-even hourly rate | $81.24 |
| Hourly rate for target margin | $101.55 |
| Annual cost to recover | $117,800.00 |
Assumptions used
All cost inputs must cover the same period and use one currency. Employer charges and overhead remain business-specific inputs. Defaults are educational scenarios, not market averages. This model does not determine tax obligations or contractual rights. Ratios with a zero denominator are marked as undefined rather than presented as a misleading zero percent.
On your side of the Atlantic
Use your state and local sales-tax treatment, payroll records, and supplier quotes. A national default cannot describe every US job.
Common mistakes
Do not divide by paid hours when only part of the year is billable. Use a fully loaded labour input or account for missing employer costs separately, but avoid counting the same cost twice.
Before ordering or tendering, compare at least two scenarios: your base takeoff and a realistic alternative. Keep assumptions with the result so differences are explainable. Save an estimate only on a suitable device. A shared link contains the entered values, so avoid including confidential information. An exported estimate is a snapshot and does not update when a supplier changes a price.
Questions from the jobsite
What does this calculator measure?
What is the first mistake to avoid?
Are the example prices supplier quotes?
Which tax assumptions apply in United States?
How should I handle waste and contingency?
Can I use the result in a tender or estimate?
Planning estimate only. Not a substitute for a professional quote or local building-code compliance. Verify quantities, tax treatment and contract requirements.
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