What does an hour really cost you?
The wage is not the cost. In the example below, $25 an hour of pay becomes $57.05 for every hour that can be billed, once what is paid on top of wages, the hours nobody pays you for, and overhead are in it.
Work out what an hour costs you
Payroll taxes, workers' compensation insurance, benefits. It starts at $25 so there is something to show. Put in your own.
The rest goes to driving, estimates, picking up parts and paperwork. 30 is our choice to start from, not a typical figure.
What the business pays whether or not there is a job on: truck, insurance, phone, software, shop, tools, office.
If you want it checked. Leave it empty if not.
Type what you pay for an hour. The answer shows here.
One hour, step by step
An example with made-up numbers, not a going rate
Say you pay someone $25 an hour. Payroll taxes and insurance put $25 on top of every $100 of wages, so a paid hour is really $31.25. You pay for 40 hours a week and can bill 30. The 10 hours nobody pays you for have to be carried by the ones you bill, which makes each of those $41.67. Overhead of $2,000 a month is $24,000 a year, and spread over 1,560 billed hours it adds $15.38. An hour you can bill costs you $57.05.
The sum, a line at a time
- Start with what you pay for an hour.
- Add what you pay on top of it: payroll taxes, workers' compensation insurance, benefits.
- Multiply by the hours you pay for in a week, and divide by the hours of that week you can bill.
- Add a year of overhead, divided by the hours you can bill in a year.
That is what an hour you can bill costs you. A rate above it leaves you something. A rate under it loses money on every hour you sell.
This is the usual way to work it out. Your accountant may spread overhead differently.
What each rate leaves you
An example with made-up numbers, not a going rate
| Price | You keep | Of every $100 |
|---|---|---|
| $64 | $6.95 | $11 |
| $72 | $14.95 | $21 |
| $82 | $24.95 | $30 |
| $96 | $38.95 | $41 |
| $115 | $57.95 | $50 |
Check what you charge now
In the same example, say you charge $75 an hour today. You keep $17.95 of every hour, which is $24 of every $100. You charge $75, and $57.05 of that covers what the hour costs you.
At $55 an hour it goes the other way. The hour is sold for $2.05 less than it costs you.
Then hold the answer up against your year. At $75 an hour, 1,560 billed hours come to $117,000 billed in a year, if every week goes like this one. If that is nowhere near what your business really bills, look again at the hours you typed.
If it is just you
An example with made-up numbers, not a going rate
Say you work alone, you want to pay yourself $30 an hour, and your overhead is $1,500 a month. You work 40 hours a week and can bill 30 of them. An hour you can bill costs you $51.54, before your own taxes and insurance.
An example with made-up numbers, not a going rate
| Price | You keep | Of every $100 |
|---|---|---|
| $58 | $6.46 | $11 |
| $65 | $13.46 | $21 |
| $74 | $22.46 | $30 |
| $86 | $34.46 | $40 |
| $104 | $52.46 | $50 |
Nothing is filled in on top in this example, because that figure is yours. What you pay in your own taxes and for your own insurance belongs in the calculator, either in the box for what you pay on top or in overhead. This page does not work out self-employment tax.
What goes on top of wages, and what goes in overhead
On top of wages goes everything you pay because someone is on the payroll: payroll taxes, state unemployment tax, workers' compensation insurance, health insurance, paid days off. The box starts at $25 on top of every $100 so there is something to show. It is not your number, and this page fills in nothing for your state.
Overhead is what the business pays whether or not there is a job on: the truck, insurance on the business, the phone, software, the shop, tools, the office. Type a month of it or a year of it. The calculator spreads a year of it over the hours you can bill in a year.
In TailGateBid
TailGateBid is an app for trade businesses: quotes, scheduling and invoices from your phone. It does not add this sum up for you.
On its Rates page you type what you charge for an hour and, if you know it, what that hour costs you. With both typed in, it shows what you keep of every hour and warns you when a price is under its cost. The cost you work out here is the second of those two numbers.
Once you know your hour, work out what a whole job costs you. If you set prices by adding a percent on top of cost, see what that really leaves you of every $100.
The payroll figures on this page are for the United States.
Where each number comes from
- When this page works out a price for you, it never aims to leave you more than $90 of every $100. TailGateBid's own price suggestions stop at the same place. A price you type yourself can leave more.
- The ladder shows the prices that leave about $10, $20, $30, $40, $50 of every $100. The steps are our choice: a ladder to read across, not advice.
- An employer pays $6.20 for Social Security on top of every $100 of wages. It is part of what goes in the box for what you pay on top. Internal Revenue Service, Topic no. 751, .
- An employer pays $1.45 for Medicare on top of every $100 of wages. That goes in the same box. Internal Revenue Service, Topic no. 751, .
- Federal unemployment tax comes to no more than $42 a year for each employee when the full credit for state unemployment tax applies. That is too little to change the answer, so it is not in the sum. Internal Revenue Service, Topic no. 759, .
- The box for what you pay on top of every $100 of wages starts at $25. That is the low end of a rule of thumb the Small Business Administration gives for what an employee costs: "typically 1.25 to 1.4 times the salary". Starting at the low end is our choice. U.S. Small Business Administration, . (our choice, change it)
- Hours paid in a week start at 40. (our choice, change it)
- Hours you can bill in a week start at 30. That is not a typical figure for any trade. Put in your own. (our choice, change it)
- A year is counted as 52 weeks like the one you typed.
In TailGateBid you type what you charge for an hour and what that hour costs you, and it tells you what you keep of every hour.
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Sources
Related
- Job price16 hours of work and $600 of materials cost you $1,320. See what five prices would leave you.
- What you keep of every $100Something that costs $100 and sells for $150 leaves you $33.33 of every $100, not half.
- Deposit and sales taxOn a sample quote, 7.25% of $2,035.00 is $147.54 of tax, and a 10% deposit on the total is $225.75.
By TailGateBid. .
A calculator works from the numbers you type. Check the answer against your own books.