Find the floor before setting the target

Break-even Hourly Rate Calculator for Contractors

Combine the direct cost of a billable hour with its share of annual overhead to find the service rate where operating profit is exactly zero.

Planning estimateFormula v1.0.0Reviewed July 31, 2026

What it answers

See the gap between your current rate, break-even floor, and target operating rate.

Runs locally

Local workspaceInputs are not sent anywhere

Overhead recovery

Build the annual cost of staying open

Keep indirect overhead separate from direct job costs. Enter every rate yourself; no regional or legal defaults are supplied.

Recovery model

Per billable hourSpread overhead over annual billable capacityPer jobSpread overhead across annual job countRevenue targetRecover direct cost, overhead, and operating margin

Overhead line items

Amounts are normalized to one annual total using their cadence.

Overhead item 1

CategoryDescriptionAmount$Cadence

Recovery, capacity, and margin

Required fields change with the selected model. Optional fields unlock additional comparisons.

Annual billable hoursRequiredThe realistic annual hours available to bill across included roles.Annual jobs completedOptionalBlended direct-labor cost per billable hourRequired$Current average billable rateOptional$Target operating marginRequired%Operating margin includes the entered direct-cost and overhead basis.Annual direct job costsOptional$Include materials and subcontractors here only for revenue-target mode.Productive available hoursOptionalUsed to estimate the utilization required to cover annual overhead.

Your result

See what every billable hour or job must recover

Add overhead, select a recovery model, and enter its required capacity inputs. Valid edits recalculate automatically.

Formula methodology

Input contract

What goes into the result

Annual overhead
Annual billable hours
Direct labor cost per billable hour
Current rate
Target operating margin

Output contract

What comes back

Overhead per billable hour
Break-even rate
Target operating rate
Rate gap
Hours to cover overhead

Worked examples

Follow the denominator.

These are hypothetical teaching examples, not market-rate recommendations. Your result uses only the values you enter.

Example 1

$90 break-even at 20% target margin

$90 ÷ (1 − 0.20)

$112.50 target operating rate

Example 2

$75 current rate on $50 direct labor

$25 contribution per hour before overhead

Annual overhead ÷ $25 = hours required

Included in the math

Indirect-cost recovery
Current-rate comparison
Capacity sensitivity

Not modeled unless entered

Job materials and subcontractors
Sales tax
A guaranteed market price

Edge cases & common mistakes

The formula can be right while the cost basis is wrong.

Calling break-even profitable

Break-even recovers the modeled cost basis but intentionally produces zero operating profit.

Dividing by paid hours

Overhead should be recovered across the hours you can actually bill, not every hour on payroll.

Leaving owner compensation unclassified

Classify field production and indirect leadership consistently to avoid an understated or duplicated cost.

Plain-language answers

Frequently asked

Can my current hourly rate be below break-even?

Yes. The calculator shows the gap so you can review costs, utilization, scope, and pricing rather than assume more volume will solve it.

Does break-even include profit?

No. Use the target operating margin input to calculate a rate above the break-even floor.

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