Why the wage on the paycheck is only half the story
Say you pay yourself or a helper $28 an hour. That $28 is the smallest part of what the hour really costs. Three things stack on top of it, and none of them show up on a paycheck.
The extras on top of wages. Payroll taxes, workers’ comp insurance, any benefits, plus tools, phone, and the truck. In the trades this usually adds 25% to 50% on top of the base wage. Workers’ comp alone is expensive in fields like roofing.
The hours you can’t bill. You get paid for a full day, but you can’t charge a customer for all of it. Driving, loading up, buying parts, going back to fix a callback, doing paperwork at night — you pay for that time but can’t invoice it. This is the number owners underestimate the most, and it does the most damage.
The cost of running the business. Every hour you can bill has to help pay for the stuff that keeps the business alive but isn’t tied to any one job — insurance, phone, software, advertising, and your own office time.
Stack those three on the wage and the $28 worker turns into a $70-plus worker. Let’s build the real number.
One simple example you can copy
We’ll use one small operation the whole way through. Change the numbers to match your own — the steps are the same no matter your trade or size.
Our example: a one-person shop (or an owner plus one helper). We’ll price the work at $28/hour in base wages. The owner handles their own paperwork and scheduling. Yearly business costs not tied to any job (truck, insurance, phone, software, advertising, a fair owner salary) get totaled in Step 3.
Step 1: Add the extras to the wage
Start with the wage and add everything else it costs to employ someone (even if that someone is you).
| Cost | Per hour |
|---|---|
| Base wage | $28.00 |
| Payroll taxes | $2.80 |
| Workers’ comp | $3.50 |
| Benefits | $3.00 |
| Paid time off & holidays | $2.20 |
| Tools, phone, uniform | $1.50 |
| Real cost per hour | $41.00 |
The $28 worker now costs $41 an hour — about 46% more. Your number will differ by trade and state; a low-risk trade in a cheap state might add 30%, a roofer in a high-cost state closer to 55%. Use your own. The point stands: the real cost is a lot higher than the wage.
Step 2: Only some of those hours get billed
Here’s where the money leaks. You pay for about 2,080 hours a year (40 hours a week, 52 weeks). You can’t bill all of them.
| Hours | |
|---|---|
| Hours you pay for in a year | 2,080 |
| Time off, holidays, sick days | −120 |
| Driving between jobs | −310 |
| Buying parts, loading, paperwork | −180 |
| Callbacks, training | −120 |
| Hours you can actually bill | about 1,350 |
So you pay for 2,080 hours but only bill about 1,350 of them. That’s normal — it’s a 65% billable rate, which is solid.
Now the key move. That $41-an-hour cost has to be covered by the 1,350 hours you bill, not the 2,080 you pay for. Here’s the simple way to do it:
You pay for about 1.5 hours for every 1 hour you bill. So take your real cost of $41 and multiply by 1.5. $41 × 1.5 = about $62 per billable hour.
The $28 worker is now a $62 worker — and we still haven’t added the cost of running the business, or any profit.
Step 3: Add the cost of running the business
Now add the costs that keep the business alive but don’t belong to any one job — insurance, phone, software, advertising, and your own office time.
Say those run $81,000 a year for our example, and you bill about 1,350 hours a year. Spread the cost across those hours:
$81,000 ÷ 1,350 hours = $60 per billable hour.
Add that to what we already have:
$62 (the worker) + $60 (running the business) = about $122 per billable hour.
This is your break-even rate — the price where you don’t lose money, but you don’t make any either. In our example, about $122 an hour.
Sit with that. A shop paying $28-an-hour wages has to charge around $122 an hour just to break even. Anyone charging $95 “because that’s the going rate” is paying customers for the chance to do their work.
(If you run a helper too, you split the running-the-business cost across both people’s billable hours, which brings the per-hour number down. The calculator handles this for you.)
Step 4: Add your profit to get your target rate
Break-even keeps the lights on. It doesn’t replace a truck, cover a slow winter, or pay you what you’re worth. For that, you build profit into the rate.
Say you want to keep 20 cents of every dollar as profit. Here’s the plain-language way to do it — and the mistake to avoid:
The wrong way: add 20% to your cost. That does not give you 20% profit. The right way: take your break-even and divide by 0.8 (because you’re keeping 80% for costs and 20% as profit). $122 ÷ 0.8 = about $153 per hour.
Round to a clean $150 an hour, and that’s your target rate — the price that keeps you healthy, not just alive.
| Your rate | What it means |
|---|---|
| $62 | Just the worker’s real cost — never charge this |
| $122 | Break-even — the floor, zero profit |
| $150 | Target — break-even plus a fair profit |
The gap between break-even and target is the difference between surviving and building something. And the gap between the wage and break-even is where most “busy but broke” owners quietly disappear.
The two numbers you should always know
Most owners carry one hourly rate in their head. Smart ones carry two.
Break-even is your walk-away line. It’s the price you cannot go below, ever, because below it you’re paying to work. Use it when a customer pushes hard on price, or when you’re deciding whether to take a cheap job just to stay busy.
Target is your normal price. It’s what you quote when you have no reason to give a discount. If most of your jobs land at or above target, you’re healthy. If most land near break-even, you’re running a charity with a tool belt.
Here’s why both matter: when a customer pushes and you know your break-even is $122, you can hold firm at $140 with total confidence — because you know exactly where your floor is. The owner who only remembers “around $150, I think” caves to $105 under pressure and doesn’t realize until tax season that the job lost money.
What this means for pricing your jobs
Your hourly cost is the foundation, but you usually won’t quote jobs as a raw hourly rate — most customers don’t want to hear “$150 an hour and I’m not sure how long it’ll take.”
Instead you’ll wrap that rate inside a pricing method like flat rate or cost-plus. The hourly number doesn’t go away — it becomes the thing you check every price against. That’s the next guide: 5 Ways to Price a Job in Trade & Home Services.
If you haven’t set your baseline numbers yet, start with Your Trade’s Baseline Numbers — those feed directly into this math.
Mistakes that wreck this math
- Spreading costs over all your hours instead of just billable ones. This makes your rate look way too low. It’s the number-one reason owners underprice.
- Forgetting to pay yourself. Put a real salary for yourself into the running-the-business costs, even if you can’t take it all home yet.
- Guessing at your billable hours. “I’m busy all day” isn’t a number. Track it for a month — it’s almost always lower than it feels.
- Adding profit the wrong way. Adding 20% to your cost gives you about 17% profit, not 20%. Divide by 0.8 instead.
- Setting your rate once and forgetting it. Wages, fuel, and insurance all creep up. Redo this math at least once a year.
Frequently Asked Questions
How much should I charge per hour for home services work?
There’s no one number — it depends on your wages, your extra costs, how many hours you can bill, and what it costs to run your business. For many small shops the real break-even lands around $100–$130 an hour, with a healthy target closer to $140–$160. Run your own numbers rather than copying a competitor.
Why does a $28-an-hour worker cost me so much more than $28?
Because the wage is only about half the real cost. On top of it you’re paying taxes, insurance, and benefits, covering hours you can’t bill (like drive time), and covering the cost of running the business. All three are real; none show up on the paycheck.
What’s the difference between break-even and target rate?
Break-even covers all your costs with zero profit — it’s the price you can’t go below. Target is break-even plus a fair profit — it’s your normal quote. Never drop below break-even; aim to land at or above target.
How many of my hours can I actually bill?
For most home services work, about 55–70% of the hours you pay for end up billable. The rest goes to driving, buying parts, callbacks, and paperwork. Measure your own for a month — it’s the number that changes your rate the most.
