In one line
What you charge for an hour of work, built from wages, overhead and profit rather than from wages alone.
Also called a labour rate, a shop rate, or a charge-out rate.
What it means in practice
A rate that only covers what you pay yourself pays for nothing else. Add the overhead per billable hour, then the profit you intend the business to make, and the rate that comes out is the one that keeps the lights on.
Billable hours are the ones a client pays for. Quoting, driving, invoicing and chasing are real hours that no client pays for directly, which is why the divisor is always smaller than you expect.
Example. $38 wages, $20 overhead and $17 profit per hour gives a $75 rate.
Where it shows up on the paperwork
It shows on the line as the rate, with hours as the quantity. On a fixed price quote it is invisible to the client and still the number that decides whether the price works.
What goes wrong
- Building it from wages alone, so overhead comes out of your profit.
- Dividing overhead across worked hours rather than billable hours.
- Charging the same rate for skilled work and for waiting on site.
The tools for this
Related terms
- OverheadThe running costs of the business that no single job pays for directly.
- Unit priceThe price of one of something: one door, one metre, one hour, one visit.
- Time and materialsBilling the hours actually worked plus the materials actually used, rather than a fixed price.
Common questions
How do I set my hourly rate?
Add what you need to earn per hour, the overhead per billable hour, and the profit the business should make. Wages plus $20 of overhead plus $17 of profit is a $75 rate, not a $38 one.
Should I show my hourly rate on a quote?
Only where the work is genuinely billed by the hour. On fixed price work the client is buying the outcome, and showing the rate invites a conversation about your speed rather than the job.