Here's how a lot of independent installers set their price. They take what they made on a W-2, maybe add a few bucks, and check what the other guys charge.
That's how you end up busy all year and broke in January.
Your price has to cover a lot more than your old wage. This guide gives you a simple formula you can run on a napkin or a spreadsheet.
Key takeaways
- Your rate has to cover your pay, self-employment tax, benefits, overhead, and profit.
- You can't bill every hour you work. Driving, estimating, and admin eat real time.
- Break-even rate = total yearly costs ÷ billable hours. Then add profit.
- Margin and markup aren't the same. A 15% margin needs about a 17.6% markup.
- Convert your hourly number into per-unit or flat-rate pricing by tracking how long jobs really take.
Step 1: Decide what you need to pay yourself
Start with the yearly pay you want before personal income tax. Be honest. This is your salary for running a business, not just swinging a hammer.
Step 2: Add what your old employer used to cover
On a W-2, your employer paid half your Social Security and Medicare and maybe health insurance, retirement match, and paid time off. Now that's on you.
- Self-employment tax: 15.3% on 92.35% of net earnings (Social Security portion capped at $184,500 for 2026).
- Health insurance
- Retirement savings
- Time off: vacation, holidays, sick days. You won't bill those weeks.
More on this in 1099 vs W-2: what changes when you go independent.
Step 3: Add up your overhead
Overhead is everything the business spends whether you're on a job or not. Pull a year of bank statements and list it. Common items:
- Vehicle payment, fuel, insurance, and maintenance
- General liability and other business insurance
- Tools, equipment, and repairs
- Phone, software, and subscriptions
- Licenses, permits, and continuing education
- Bookkeeping, CPA, and legal fees
- Marketing: website, Google Business Profile, yard signs, truck wrap
- Storage or shop space
Don't include job materials here. Those get priced on each job.
Step 4: Figure your real billable hours
You won't bill 40 hours a week, 52 weeks a year. Not even close.
Subtract:
- Weeks off for vacation, holidays, and sick days
- Drive time between jobs (unless you charge for it)
- Estimating, quoting, and site visits
- Supply runs
- Admin: invoicing, scheduling, bookkeeping
- Slow weeks and weather days
Track your time for a few weeks if you can. Your actual billable hours are the most important number in this whole formula.
Step 5: Run the formula
Break-even hourly rate = (pay + self-employment tax + benefits + overhead) ÷ billable hours
Then add profit. Profit isn't greed. It's what pays for a new truck, a slow winter, or growth.
A worked example
These numbers are made up to show the math. Use your own.
| Item | Example amount |
|---|---|
| Owner pay target | $65,000 |
| Self-employment tax (65,000 × 92.35% × 15.3%) | $9,184 |
| Health insurance and retirement | $12,000 |
| Overhead | $24,000 |
| Total yearly cost | $110,184 |
| Billable hours (48 weeks, about 27 billable hours per week) | 1,300 |
| Break-even hourly rate | $84.76 |
| Price with a 15% profit margin ($84.76 ÷ 0.85) | About $100/hour |
If this installer had made $35 an hour on a W-2, the jump to $100 looks huge. It isn't. That's what it actually costs to run the business and still get paid.
Margin vs markup: don't mix them up
- Markup is a percentage added to your cost.
- Margin is the percentage of the final price that's profit.
If your cost is $100 and you add a 15% markup, you charge $115. Your margin is only about 13%.
To get a true 15% margin, divide cost by 0.85: $100 ÷ 0.85 = $117.65. That's a 17.6% markup.
The same applies to materials. Decide on a material markup that covers ordering, pickup, handling, returns, and warranty risk.
Turning your hourly rate into per-unit or flat-rate prices
Many installers are paid per unit: per window, per door, per square foot, per fixture. Customers often prefer a flat price too.
Here's how to convert:
- Track real job times. Include setup, cleanup, and haul-away, not just install time.
- Average them. Say a standard window install really takes 1.5 hours start to finish.
- Multiply by your rate. 1.5 hours × $100 = $150 labor per window.
- Add trip and setup charges for small jobs, so a one-window job still pays.
- Add materials with your markup.
- Build in a buffer for the surprises you always find in old houses.
If a dealer or general contractor offers you a per-unit rate, run it through this math before you accept. If it's below your break-even, it's not a job. It's a loss.
Pricing habits that protect your profit
- Put scope in writing. Every estimate should say exactly what's included and what isn't.
- Use change orders. Extra work gets priced and signed before you do it. See contracts every tradesperson needs.
- Take deposits on larger jobs, especially when you're buying materials.
- Set an estimate expiration date. Material prices move.
- Review your numbers twice a year. Insurance, fuel, and materials go up. Your rate should too.
- Don't race to the bottom. Compete on reliability, communication, and quality.
FAQ
Should I charge hourly or by the job?
Many customers prefer a flat price because it's predictable. Use your hourly rate behind the scenes to build flat prices. Use hourly (time and materials) for jobs with a lot of unknowns.
What if my rate is higher than competitors'?
Check your numbers first. If they're right, the competitor may be underpricing or skipping insurance. Show what customers get from you: licensing, insurance, warranty, communication.
Should I charge for estimates?
For simple jobs, many tradespeople don't. For complex jobs or design work, a paid assessment that's credited toward the job is common.
How often should I raise prices?
Review at least once a year and whenever a major cost jumps.
Learn the business side, at your own pace
Our self-paced Business & AI Courses cover the fundamentals of running a trades business. See Business & AI Courses or book a free 30-minute call and we'll look at your numbers together.
This article is for educational purposes only and isn't legal, tax, financial, or insurance advice. Your situation is your own. Talk to a licensed professional before making decisions.
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Evan Lightner is the founder of Fresh Start Consulting. He started as a 12-volt and telematics technician and built his first company from the ground up. More about Evan.