How do I calculate my real hourly rate for a service business?

Start with your burdened labor rate (wage plus payroll tax, insurance, and non-billable time), add your overhead cost per billable hour, then divide by your target margin. That total — not your worker's wage times two — is the rate that actually covers your costs.

Why isn't doubling my worker's wage enough to price a job?

Doubling the wage ignores labor burden (payroll tax, workers' comp, insurance), non-billable hours like drive time and setup, and the overhead every job needs to cover. Once you add those in, the real number usually lands well above a flat 2x rule.

How often should I recalculate my hourly rate?

At least once or twice a year, and any time wages, insurance, fuel, or other overhead costs jump. Most owners set a rate once and never touch it again while their real costs keep rising underneath it.

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Your Hourly Rate Is Probably Wrong. Here's How to Find the Real Number

July 18, 2026 · 7 min read

Ask a service business owner how they landed on their hourly rate and you'll usually get one of two answers: "I doubled what I pay my guy" or "that's what everyone else in town charges." Neither one is a real number. Both are guesses dressed up as a strategy — and the gap between what you're charging and what an hour of work actually costs you is exactly where your profit disappears.

Short answer: Your real hourly rate comes from three numbers, not a guess — your burdened labor cost (wage plus taxes, insurance, and non-billable time), your overhead cost per billable hour, and the margin you need to keep. Add the first two together, divide by your target margin, and that's the rate you should be charging. For most small crews it lands well above what a simple "double the wage" rule produces.

The two shortcuts that get owners in trouble

The first shortcut is the multiplier rule: pay a worker $20/hour, charge $40 or $50, call it a day. It feels safe because it's a comfortable-looking spread. The second shortcut is copying the market: call around, see what competitors charge, and land somewhere in the middle. Both feel reasonable. Neither has anything to do with what a job actually costs your business to deliver.

Your insurance premium, your drive times, your overhead, your equipment — none of that shows up in a competitor's advertised rate or in a flat multiplier on wage. Two businesses can pay the same wage and need completely different hourly rates to stay profitable.

Start with what an hour of work actually costs you

The wage on a paycheck is never the real cost of an hour. Once you add payroll tax, workers' comp, insurance, and benefits — what's called your burdened labor cost — a $20/hour worker often costs closer to $26 or $27/hour before they've touched a single job.

Then there's non-billable time. Drive time, loading the truck, breaks, paperwork — your crew gets paid for all of it, but a client doesn't pay for any of it directly. If roughly 15% of paid hours are non-billable, your real cost per billable hour climbs again on top of the burdened rate.

Add the overhead every hour has to carry

Labor cost alone isn't the full picture either. Your vehicle, fuel, phone, software, and insurance keep running whether you book one job this week or ten. Those costs have to get spread across your billable hours somehow, or they quietly eat your profit all year without ever showing up on a single invoice. Divide your monthly overhead by the billable hours your crew actually works, and you get an overhead cost per hour that belongs in every rate you set.

Let's run the numbers

Say you pay a worker a $22/hour base wage. With a burden multiplier of 1.30 for taxes, insurance, and comp, their burdened rate is $28.60/hour. Factor in a utilization rate where 15% of paid time is non-billable, and the real cost per billable hour comes to about $32.89.

Now add overhead. Say your business spends $3,600 a month keeping the lights on, and your crew logs 150 billable hours a month. That's $24/hour in overhead riding on every billable hour.

Total cost per billable hour: $32.89 + $24 = $56.89. To keep a healthy 25% margin, you divide by 0.75 — not add 25% on top, which is the markup mistake that leaves you short. That works out to $75.85, call it $76/hour.

The "double the wage" rule would have you charging $44/hour on that same worker — more than $30 short of the real number, on every single billable hour.

Why the gap is bigger than it looks

Thirty dollars an hour sounds like a lot to miss by, and it is. Over a 40-hour week, that's $1,200 a week left uncollected. Over a year of steady work, it's tens of thousands of dollars that never shows up as a loss anywhere — it just means the business works just as hard and has less to show for it. Owners rarely notice this gap directly. They notice that revenue looks fine but the bank account never seems to reflect it, and they can't figure out why.

How often to redo this math

Your real hourly rate isn't a number you set once and forget. Wages rise, insurance renews at a higher premium, fuel costs shift, and overhead creeps up a little every year. Revisit the calculation at least once or twice a year, and any time one of those underlying costs moves. A rate that was accurate 18 months ago is very likely wrong today — not because you did anything wrong, but because the costs underneath it never stood still.

Stop guessing at your hourly rate

SolidScope builds your real hourly rate from burdened labor, overhead, and margin automatically — so every quote is based on what the job actually costs, not a rule of thumb.

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