How to Set Your Hourly Rate as a Contractor (and Stop Undercharging)

Most contractors set their hourly rate by looking at what other people charge and picking a number that feels right. That is a recipe for undercharging. Your rate should not be based on a gut feeling. It should be based on math: what you need to earn, what it costs you to operate, and what margin keeps your business sustainable. Here is how to calculate it properly.

Step 1: Figure Out Your True Cost Per Hour

Start with what you want to take home. Not revenue, not gross income, but the actual paycheck you want to deposit into your personal bank account after taxes and business expenses. Be honest with yourself. If you want to earn $70,000 per year in take-home pay, write that down.

Now add your operating costs. These are the expenses you pay whether or not you are working on a job:

• Vehicle costs: Gas, insurance, maintenance, loan payments. For most handymen, $400 to $800 per month.
• Insurance: General liability, commercial auto, tools coverage. Roughly $100 to $250 per month.
• Tools and equipment: Replacement, repair, new purchases. Budget $100 to $300 per month.
• Phone, software, and subscriptions: Your phone plan, invoicing software, accounting tools. $50 to $150 per month.
• Marketing: Website hosting, business cards, Google ads if applicable. $50 to $200 per month.
• Miscellaneous: Licensing fees, continuing education, office supplies. $50 to $100 per month.

Add up your monthly overhead and multiply by 12 to get your annual operating cost. For a typical solo handyman, this is $10,000 to $25,000 per year.

Step 2: Account for Taxes and Non-Billable Time

As a self-employed contractor, you pay both the employer and employee portions of Social Security and Medicare taxes (15.3%), plus federal and state income tax. A reasonable estimate for total tax burden is 25% to 35% of your gross income, depending on your state and deductions.

You also cannot bill for every hour you work. You spend time driving between jobs, writing estimates, buying materials, doing bookkeeping, responding to inquiries, and handling administrative tasks. Realistically, a solo handyman can bill 25 to 30 hours per week out of a 40 to 50 hour work week. That is roughly 1,300 to 1,500 billable hours per year.

Here is the formula:

Hourly rate = (Desired take-home pay + Annual overhead + Annual taxes) / Billable hours per year

Let us run the numbers with a real example:

• Desired take-home pay: $70,000
• Annual overhead: $18,000
• Gross income needed before taxes: ($70,000 + $18,000) / (1 - 0.30 tax rate) = $125,714
• Billable hours per year: 1,400
• Hourly rate: $125,714 / 1,400 = $89.80 per hour

Round up to $90 per hour. That is the minimum you need to charge to take home $70,000 after taxes and expenses. If you want to build savings, fund retirement, or grow your business, add a profit margin of 10% to 20% on top, bringing it to $100 to $108 per hour.

The "Double Your Salary" Rule: Close, But Not Quite

You may have heard the advice to "double whatever you want to earn as salary and that is your hourly rate." So if you want $70,000, charge $35 per hour times two, which gives you $70 per hour. This is a useful shortcut, but it underestimates your actual costs.

The doubling rule assumes 2,000 billable hours per year (40 hours per week, 50 weeks). But most solo contractors bill closer to 1,300 to 1,500 hours. It also uses a rough estimate for taxes and overhead that does not account for regional differences. The formula in Step 2 is more accurate because it uses your actual numbers.

That said, if you are currently charging $40 per hour because "that is what seems fair," the doubling rule at least gets you moving in the right direction. Use it as a sanity check, but do the full calculation when setting your official rate.

Regional Rate Differences

What you can charge depends heavily on where you work. A handyman in rural Kansas and a handyman in San Francisco are serving different markets with different cost structures and different client expectations. Here are general ranges for handyman hourly rates as of 2025 to 2026:

• Rural areas and small towns: $45 to $75 per hour
• Mid-size cities and suburbs: $65 to $100 per hour
• Major metro areas: $85 to $150 per hour
• High-cost markets (NYC, SF, LA, Boston): $100 to $200+ per hour

These ranges are for general handyman work. Specialized skills (electrical, plumbing, tile work) command higher rates. If you are at the bottom of your market's range, you are probably undercharging.

How to Research What Others Charge

Knowing your market rate gives you confidence when quoting jobs. Here are a few ways to research:

• Call around: Call three to five handymen in your area as if you were a customer and ask for their rates. This is the most direct method.
• Check Thumbtack and Angi: Browse local handyman listings to see advertised rates. Keep in mind these platforms often push rates down due to competition, so listed rates may be below true market value.
• Ask your network: Other contractors, realtors, and property managers know what rates are standard in your area. Buy a fellow contractor lunch and compare notes.
• Review your own data: If you have been tracking your jobs and profitability, look at which jobs were profitable and which were not. Your data will tell you where your floor should be.

Do not set your rate based solely on what others charge. If your overhead is higher or your skill level justifies a premium, charge accordingly. The market rate is a reference point, not a ceiling.

How to Raise Rates on Existing Clients

Raising rates is uncomfortable, but it is necessary. Your costs go up every year (fuel, insurance, materials), and your skills improve with every job. If you have not raised your rates in two years, you are effectively making less money than you were before.

Here is a script that works: "Hi [name], I wanted to give you a heads-up that starting [date], my hourly rate will be going from $75 to $85. I have not adjusted my rates in [X] years, and my costs have gone up. I really value our working relationship and want to keep doing great work for you." Send this 30 days before the increase takes effect.

A few tips for smooth rate increases:

• Raise rates once a year in January. It is expected and easy to remember.
• Increase by 5% to 10% at a time. Gradual increases are easier for clients to absorb than large jumps.
• Lead with value. If you have added new skills or services, mention them.
• Accept that you may lose a client or two. The ones who leave over a $5 to $10 per hour increase were probably not your best clients anyway.

When Flat-Rate Beats Hourly

Hourly billing is straightforward, but it has downsides. Clients worry about the meter running. They watch the clock. They question whether you are working efficiently. And for you, hourly billing caps your earning potential: the faster and better you get at a task, the less you earn for it.

Flat-rate (project-based) pricing solves these problems. You quote a fixed price for the job, and the client knows exactly what they are paying. If you finish early because you are skilled and efficient, you keep the difference. The client gets price certainty, and you get rewarded for being good at your job.

Flat-rate works best for:

• Jobs you have done many times and can estimate accurately (faucet replacement, door installation, drywall patching)
• Jobs with a clear, defined scope (install 200 sq ft of laminate flooring)
• Clients who are price-sensitive and want to know the total upfront

Hourly works better for:

• Jobs with uncertain scope (troubleshooting, exploratory work, "see what is behind this wall")
• Ongoing maintenance or handyman punch lists
• Clients who add tasks as you work ("while you are here, can you also fix the...")

Many successful handymen use a hybrid approach: flat-rate for common, repeatable jobs and hourly for everything else. Track your time on flat-rate jobs using a job timer to make sure your flat-rate prices are generating your target hourly rate or better.

The Psychology of Pricing

Pricing is not just math; it is also perception. Clients form opinions about your quality based partly on what you charge. If your rate is significantly below the market average, clients may assume you are less experienced or less reliable. Cheap signals cheap.

Conversely, a higher rate signals confidence and quality, as long as you deliver on that promise. You do not need to be the most expensive handyman in town, but being in the upper half of the market gives you clients who respect your time, pay promptly, and value quality over the lowest bid.

Two more psychological tips:

• Quote the job, not the hour: Instead of saying "That will be about four hours at $90 per hour, so $360," say "That job is $360." Clients respond better to a total price than to an hourly rate multiplied by time. Even if you calculated it hourly behind the scenes, present it as a job price.
• Offer options: Give clients two or three options at different price points. "I can patch the drywall for $150, or I can patch and repaint the whole wall for $300." Clients feel empowered to choose, and they often pick the middle or higher option. This anchoring technique is used in every industry because it works.

Start Charging What You Are Worth

Run the numbers from Step 1 and Step 2 this week. If the result is higher than what you are currently charging, make a plan to raise your rate. You do not have to jump overnight. Raise it for new clients immediately and phase in the increase for existing clients over 60 to 90 days.

Your skills have value. Your time has value. Your overhead is real. Set a rate that reflects all of that, and build a business that supports the life you want. If you need help tracking job profitability and making sure your rates are working, tools like PocketBoss can break down your costs per job so you always know where you stand.