Most contractors set prices off what competitors charge, what feels fair, or what the customer will not push back on. None of that tells you whether you make money. Revenue looks fine, invoices go out on time, and every quarter you somehow come up short.
Your real rate also depends on when the money arrives — contractor payment delays in 2026 has the verified receivables data.
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How do you maximize profitability as a contractor? Stop pricing from gross revenue and start pricing from your burden rate — the real cost of every billable hour after overhead and unbilled admin time. If you charge $60 an hour and your overhead costs $41, you made $19 — not $60. Build every quote from that number and your margin stops being a coin flip.
Stop guessing your margins. AllBetter Field tracks overhead, logs billable hours, and shows real profit per job — quoting, scheduling, dispatch, and invoicing in one app for $29/month flat, with a free plan to start.
The Contractor Pricing Formula
Three numbers decide whether a quote makes money. Get them in order and you never send a losing price again:
- Burden rate = total monthly overhead ÷ billable hours per month.
- Break-even hourly rate = burden rate + direct labor cost.
- Profitable hourly rate = break-even rate + target profit margin.
If you do not build every quote from this formula, you are gambling each time you send a price to a customer. That is not a business — it is a coin flip.
What Is Burden Rate (and Why It Is Killing Your Margins)
Your burden rate is the real cost of doing business per billable hour. It includes everything you pay whether or not you are on a job:
- Vehicle payments, fuel, maintenance
- Insurance — general liability, workers’ comp, vehicle
- Tools, equipment, replacement costs
- Software, phone, office expenses
- Licensing, permits, continuing education
- Unbillable time — estimates, drive time, admin, callbacks
That last one is the killer. Most contractors bill 25–30 hours a week, not 40 — the rest is eaten by quoting, driving, chasing payments, and fixing problems. Your overhead does not pause during those hours. For most solo contractors, unbillable time eats 25–40% of the work week.
The Math That Reveals the Problem
Here is a worked example. Say your monthly overhead breaks down like this:
You bill 120 hours a month — about 30 hours a week. That gives a burden rate of $4,920 ÷ 120 = $41 an hour.
Now you charge $60 an hour, and your labor costs $15 an hour (your own draw or an employee). Your break-even is $41 + $15 = $56 an hour. Your real “profit” at $60 an hour is $4 per hour — not $60, not $45. Four dollars.
At 120 hours a month, that is $480 a month in profit. One callback, one slow week, one surprise repair and you are in the red. If your burden rate were actually higher than you thought, you would lose money on every hour worked — a full month of work you paid for the privilege of doing. That is how contractors go under while staying “busy.”
Know your numbers, every quarter. AllBetter Field logs hours per job and tracks overhead automatically, so your burden rate is never a guess — one $29/month app, no per-user fees.
Why Market-Based Pricing Fails
“Charge what the market will bear” sounds smart, but matching a competitor’s price without knowing your own costs is just guessing. Here is why it fails:
- Your competitor’s overhead is not your overhead.
- Their truck might be paid off — yours is not.
- They might have a spouse handling admin for free — you are paying for it.
- They might be losing money too and not know it.
Copying a price you cannot trace back to a cost just spreads someone else’s mistake to your business.
How to Set Prices That Protect Your Profit
Five steps turn the formula into a quote you can stand behind:
- Calculate your real burden rate. Every dollar of overhead, divided by your actual billable hours — not available hours, billed ones.
- Add your direct labor cost. What you pay yourself or your crew per hour, including payroll taxes.
- Add your target margin. Industry standard is 10–20% net. For a 15% margin on a $56 break-even rate, your minimum charge is roughly $66 an hour.
- Build every quote from this number. Not from gut feel, not from what the last guy charged — from your actual cost plus your actual margin.
- Revisit it quarterly. Gas prices change, insurance renews, you add a truck or lose a tech. Small cost creep in fuel, insurance, or software subscriptions can quietly eat several points of margin over six months, so recheck the number even when nothing obvious changed.
This matters most when you scale. The moment you bring on help, labor becomes a real per-hour cost that has to clear your burden rate — our guide to growing a contracting business with subcontractors covers pricing crew hours so expansion adds margin instead of erasing it.
Quoting Smarter, Not Cheaper
Knowing your burden rate changes how you quote. You stop underbidding to win work and stop discounting out of guilt. A few principles:
- Never quote below break-even. No job is worth losing money on — not even to keep the crew busy.
- Separate materials from labor, and mark up both. Your time sourcing materials costs money too.
- Track hours per job, not per week. You need to know which projects are profitable and which are draining you.
- Use written estimates. Verbal quotes lead to scope creep and disputes. A locked written scope protects the margin you priced in.
Where the work comes from matters too. Pay-per-lead platforms add an acquisition cost on top of your burden rate, and a sunk lead fee quietly pressures you to win the job at any price. Lower-cost channels keep that pressure off your quote — see our guide to the best apps for contractors to find work.
The Real Takeaway
Your burden rate is the most important number in your business — more than revenue, your hourly rate, or how many projects you book this month. Revenue means nothing if every hour costs more than you charge. Busy means nothing if busy means broke. Calculate it, build your pricing around it, and track it every quarter. That is how contractors go from surviving to actually making money.
Frequently Asked Questions
What is a burden rate in contracting?
Burden rate is your total overhead cost divided by your billable hours. It tells you what every hour of work actually costs before you earn a dime of profit. It includes insurance, fuel, tools, vehicle costs, software, and unbillable time.
How do I calculate my burden rate?
Add up every monthly expense that is not direct job materials or direct labor. Divide that total by the number of hours you actually bill in a month — not hours available, hours billed. That number is your burden rate per hour.
What is a good profit margin for contractors?
Net margins of 10 to 20 percent are standard across most trades. But “good” depends on your burden rate. A contractor charging $80 an hour with a $70 burden rate has worse margins than one charging $55 an hour with a $38 burden rate. The rate does not matter — the gap does.
Why is matching competitor prices a bad strategy?
Your overhead is not their overhead. Their truck might be paid off. Their spouse might do their books for free. Copying their price without knowing your own costs means you could be losing money on every job while they profit.
How often should I recalculate my burden rate?
At minimum, every quarter. Recalculate whenever a major expense changes — a new vehicle, an insurance renewal, adding or losing an employee, or a fuel price swing. Your burden rate is a moving target.
What is the difference between markup and margin?
Markup is a percentage added to your cost. Margin is the percentage of the final price that is profit. A 20 percent markup on $100 gives you $120, which is a 16.7 percent margin. A 20 percent margin on $100 means you need to charge $125. Most contractors think in markup but should think in margin.
What counts as unbillable time?
Driving to project sites, writing estimates, following up on leads, ordering materials, doing admin work, handling callbacks, and waiting on inspections. For most solo contractors, unbillable time eats 25 to 40 percent of the work week. Your burden rate must account for it.
How do I raise my prices without losing customers?
Be direct. Explain that material and operating costs have increased, give notice, and deliver work that justifies the rate. Customers who leave over a fair price increase were already costing you money.
