The billable hour

A year has 2,080 paid hours — 52 weeks of 40. New independents price as if they'll bill all of them. Then admin eats an hour a day, estimates and site visits eat another chunk, weather and gaps between jobs eat more, and the "cheap" rate has to stretch across half the hours it was built for.

The funnel

Follow the shrinkage: 2,080 paid hours, minus about 480 for admin and bookkeeping, minus 312 for estimating and sales (hours that win work but can't be billed to anyone), minus 208 for downtime, weather, and the gaps no schedule avoids. What's left is roughly 1,080 billable hours — 52% of the year. Utilization near 50–60% is normal for a solo operation, not a failure; pretending it's 100% is the failure.

Build the rate backward

Now the rate stops being a guess. Say the goal is $75,000 of personal income, and the shop's overhead is $30,000 a year ($2,500 × 12, from last lesson):

$\text{rate} = \frac{\$75{,}000 + \$30{,}000}{1{,}080 \text{ h}} \approx \$97 \text{ per billable hour}$

That $97 pays you and keeps the lights on — it contains zero profit. Want the business itself to earn a real 10% margin on top? Divide by (1 − 0.10):

$\$97 \div 0.90 \approx \$108 \text{ per hour}$

Why this number surprises people

$108/h sounds enormous next to a $36/h wage ($75,000 ÷ 2,080). But the comparison is dishonest: the wage earner bills 2,080 hours to one client who also pays the rent, the insurance, the slow weeks, and the retirement plan. Your rate carries all of that across 1,080 hours. The multiple between a fair wage and a fair rate — routinely 2.5–3× — isn't greed; it's arithmetic.

Two habits to keep the number honest:

• Track utilization for one real month before trusting any estimate of it. Your funnel is yours; 52% is a starting point, not a law.
• When utilization drops, the rate must rise — or the income target must fall. There is no third option; there is only discovering it in April.

You now have the two numbers that price everything: $25/h overhead and ~$97–108/h rate. Module 2 puts them under stress: break-even, discounts, and the price-versus-volume trade.