Admin, travel, training, and unpaid gaps reduce billable hours. Dividing by all paid hours usually understates the necessary charge.
Try this with your own numbersFormula and worked example
Hourly rate = (compensation + overhead + profit) / billable hours
| Input | Example |
|---|---|
| Annual owner compensation target | 50,000 |
| Annual fixed overhead | 30,000 |
| Annual profit target | 20,000 |
| Annual billable hours | 1,200 |
| Calculated result | 83.3333 per billable hour |
Choose reliable inputs
Plan materials, travel and crew time before committing to a price. For this tree service calculation, use a completed job sheet, supplier quotes and a crew schedule and a consistent definition of one tree job.
- Crew time: include the portion belonging to this tree job or reporting period, and record where the value came from.
- Equipment hire: include the portion belonging to this tree job or reporting period, and record where the value came from.
- Waste removal: include the portion belonging to this tree job or reporting period, and record where the value came from.
Use the same currency for every money input. Do not mix weekly costs with monthly revenue, or count the same expense in both an itemised cost and allocated overhead.
Should I use paid hours or billable hours?
Admin, travel, training, and unpaid gaps reduce billable hours. Dividing by all paid hours usually understates the necessary charge.
Compensation is a business planning input; this is not a payroll or tax calculation.
What if this input changes?
If annual owner compensation target rises by 10%, this example changes by 4.1667 per billable hour. This shows the effect of one change; it does not predict what will happen.
Open the calculator, save your baseline, then change the input supported by the least reliable estimate in your records. Compare both scenarios before committing to a price or capacity promise.