How it works
Revenue needed = (your pay + business costs + self-employment tax on your pay) ÷ (1 − profit cushion)
Billable hours = hours a week × billable share × weeks a year
Minimum hourly rate = revenue needed ÷ billable hours
Self-employment tax is the Social Security and Medicare you pay as your own employer: 15.3% on 92.35% of your earnings for 2026 (Social Security stops at $184,500). Income tax isn’t included; it comes out of your pay, as it would at a job.
A worked example
A bookkeeper wants to pay herself $50,000 a year. Software, insurance, a laptop and marketing cost $12,000. Self-employment tax on her pay is about $7,065. With a 10% cushion she needs about $76,739 in revenue.
She works 40 hours a week, 48 weeks a year, but only 65% of that is billable: 1,248 hours. $76,739 ÷ 1,248 = $61.49 an hour. A three-hour job with $15 of materials should be at least $199.47.
Common mistakes
- Dividing your desired income by 2,080 hours. Nobody bills 40 hours a week, 52 weeks a year.
- Forgetting self-employment tax. As your own employer you pay both halves of Social Security and Medicare.
- Matching the cheapest competitor. Their costs and hours aren't yours, and some of them are going out of business.
What this doesn’t tell you
This gives a floor that keeps you in business at the hours you entered. It doesn't tell you what your market will pay; that takes looking at competitors and testing. If your floor is far above the market, the problem is costs, hours or the business model, not the price.
Related calculators
Go deeper: 15 Numbers Every Small Business Owner Should Know, from The Groundwork Review.
Anticipated Questions
Should I charge by the hour or by the job?
Customers usually prefer a flat price per job. Use the hourly rate behind the scenes: estimate the hours, multiply, add materials. As you get faster, a flat price earns you more per hour.
What billable share should I use?
Track a few weeks honestly: every hour worked, and which ones a customer paid for. The rest goes to travel, quotes, admin and finding customers, and it's usually more than owners expect.
Does this include income tax?
No. Income tax is paid on your pay, the same as at a job. Use the self-employment tax calculator to see what to set aside.
What if my rate is higher than competitors?
Then compete on something besides price: reliability, speed, specialty or service. If that can't close the gap, cut costs or raise billable hours before cutting your rate.
Sources
- IRS: Self-employment tax (Social Security and Medicare taxes)
- Social Security Administration: 2026 contribution and benefit base ($184,500)
Last reviewed October 19, 2026. How our calculators work. General information for planning, not legal, tax or financial advice. Found an error? Email info@groundworkbusinessadvisory.com.
