The most expensive mistake a US contractor makes is not a bad job or a lost bid. It is a rate set by feel — matching the guy down the street, or charging what feels like "a lot per hour" — without ever doing the math on what that hour actually has to cover. If your rate feels fine but your bank account never moves, you are probably underpricing. Almost everyone is.
This calculator works the number backwards from the only thing that matters: the take-home pay you actually want. Adjust your figures above and watch your real rate appear in real time.
How to read the results
- Hourly rate to charge is the headline: the rate that covers your costs, your taxes and your benefits, and still leaves the take-home pay you set as your goal.
- Day rate (8h) is that rate across a standard eight-hour day, handy for quoting whole-day work.
- Billable hours/year is the engine of the whole calculation — the hours you actually invoice, not the hours you work.
- Overhead + benefits is the fixed cost of staying in business before you pay yourself a dime.
- Pre-tax revenue needed is what your business has to bill before taxes to hand you your goal.
Why so many contractors underprice
Three leaks, every time. First, they price against hours worked instead of hours billed — spreading a year's income goal across 40 hours a week when they only invoice 25 to 30. Second, they forget overhead: the truck, the liability insurance, the tools, the software, the phone. Those costs do not show up on any single invoice, so they get ignored until the year ends and the money is gone. Third — the big one — they never price in tax.
Self-employment tax is not optional
When you work for yourself, you owe self-employment tax: 15.3% of net earnings to fund Social Security and Medicare, on top of any federal and state income tax. As an employee, your employer quietly paid half of that. On your own, you pay both halves, before income tax even enters the picture. The IRS lays out the 15.3% plainly. The calculator's tax buffer bundles self-employment and income tax into one percentage so the rate you see is the rate that survives April.
Benefits are now your line item too
Health insurance and retirement used to be an employer's problem. As a contractor, every dollar of coverage comes out of what you bill. Leaving it out of your rate is the same as taking a pay cut you never agreed to — so it sits in the model as its own input.
What to do with the number
If the rate the calculator shows is above what you charge today, that gap is not a pricing opinion — it is the money you are currently donating to your customers. The fix is rarely "raise prices on everything tomorrow." It is tightening your operations so more of your worked hours become billable, then re-quoting new work at the real number.
Pair this with the hourly rate calculator for a margin-based view, and check whether each job actually clears with the job profit margin calculator before you sign it. The pricing science guide and the quotes that win more jobs playbook explain how to raise your rate without losing the bid.
When you want to pressure-test these numbers against your real books, talk to us.