In short
Charging €35 an hour when your labour costs you €28 leads straight to bankruptcy. Direct costs, overheads, margin: the complete method to calculate an hourly rate that covers your charges and still leaves a profit.
Why a guessed hourly rate ruins a business
Many tradespeople set their hourly rate by looking at the competitor next door or reusing last year's figure. It is the surest way to work at a loss without realising it. A fair hourly rate is calculated from your own costs, not from the market.
The logic has three layers. First, the direct cost of labour, or hourly disbursement: what one hour of work actually produced costs you. Then overheads: everything that keeps the business running without being directly chargeable to a site. Finally the margin, which covers contingencies and rewards the risk.
You start from cost, add overheads, add margin. The selling hourly rate is the result — never the starting point.
Step 1: calculate the hourly cost of labour
The hourly disbursement answers a simple question: how much does one hour actually produced by a worker cost me? You divide the worker's full annual cost by the number of productive hours.
The annual cost is not just the gross wage. You must add employer's contributions (around 40 to 45%), the paid leave handled by the CIBTP fund, bonuses, meal allowances and the travel or transport allowances specific to construction.
On the hours side, the trap is to reason in paid hours. On a basis of 1,607 annual hours, you deduct leave, public holidays, weather stoppages, training and absences: what remains is often around 1,450 genuinely productive hours. A worker paid €14 gross per hour can thus end up costing €24 or €26 per hour of disbursement. It is this figure, not the wage, that serves as the basis.
Step 2: add overheads and margin
Overheads cover everything not tied to a specific site: ten-year structural insurance, vehicles, fuel, premises, accounting, telephony, equipment depreciation, the non-productive part of the owner's pay. They are expressed as a percentage of the disbursement, generally between 10 and 25% in a small construction firm.
Then comes the margin. It is not a luxury: it absorbs the unexpected (bad weather, defects, late payments) and provides the capacity to invest. A targeted net margin of 5 to 10% is a common benchmark.
By combining these layers, you get a selling coefficient. With a disbursement of €25, 15% overheads and 8% margin, the selling hourly rate settles at around €31 excluding tax. Change one parameter and the price moves — which is exactly why you should calculate rather than guess.
Check, adjust and hold your rate
An hourly rate is not set in stone. It must be tested against reality: at the end of a job, compare the hours planned with the hours actually spent. A recurring gap signals either an under-valued rate or an organisation problem.
Beware of 'invisible' hours: travel, loading, cleaning, after-sales calls, unsigned quotes. If they are not covered by productive hours or overheads, they eat into your margin without appearing anywhere.
Finally, review your rate at least once a year. Wages, fuel, insurance and contributions all change. Holding your rate does not mean matching the cheapest in the sector: it means charging a price that keeps you alive after the last sweep of the broom.
Constrigo Team
Construction software & management experts — we break down regulations and best practices.