Break-even hourly rate, in one sentence
Your break-even hourly rate is what the business has to bring in for every hour it is running just to cover what it costs to exist. Take twelve months of costs, everything: truck, fuel, insurance, phone, software, the accountant, your own pay. Divide that by the hours the business was actually moving. That number is the floor. Anything under it is you working for free.
Most owners have never worked it out. They know their hourly charge, which is a completely different number, and the gap between the two is where the year goes.
Why it isn’t the same as what you charge
What you charge is a price. Break-even is a cost. You can charge $95 an hour and still lose money, because the price says nothing about how many hours went unbilled to earn it.
The reason is the denominator. Billable hours are the ones that end up on an invoice. Every other hour still costs you: driving across town, the stop at the supply house, the hour after dinner writing quotes, Saturday’s warranty call that nobody is paying for.
Two lawn care outfits can quote the identical rate and end the year in completely different places, and the whole difference sits in hours that never got billed. Which means the first move usually isn’t raising your price. It’s finding the unbilled hours and either cutting them or billing them.
Working it out on the back of an envelope
- Add up twelve months of everything. Not just materials. Insurance, fuel, the truck payment, the phone, the software, the accountant, and what you need to pay yourself. Your Schedule C from last year is the fastest place to pull most of it.
- Count the hours the business ran. Not the billed ones. Every hour anybody was working, including you at the kitchen table on Sunday night.
- Divide. Costs over hours. That’s break-even hourly.
- Now work out effective hourly. Total revenue over those same hours. That’s what you actually made per hour.
Two numbers, same denominator. If effective is above break-even you made money. If it’s below, you funded the year yourself. The SBA’s guide to managing business finances walks the same arithmetic in more detail if you want to see it laid out.
Or type four numbers into the Real Rate Check and it does both in about two minutes.
The second number: what one missed call a week is worth
Average ticket, times close rate, times 52.
That’s it. If your average job is $340 and you close half the calls you pick up, one call a week going unanswered is worth about $8,800 over a year. Nothing scary in the math. It’s multiplication on your own figures.
What makes it strange is that it never shows up in your books. Every other cost leaves a receipt. A missed call leaves nothing, so it never comes up in the same conversation as the expenses do. You can see your own version in the missed call revenue calculator.
Fixing it isn’t clever. Something picks up inside a minute, every time, and the something is allowed to book. That’s the whole idea behind missed-call text-back.
What to do when the gap is ugly
Three moves, in the order that usually works.
- Find the unbilled hours. A week of writing down what you did each hour is enough. Write down what you did each hour and the unbilled ones stop being invisible, which is the only reason they survive.
- Stop the leak at the phone before touching price. A caught call is revenue you already paid to generate.
- Then raise the price, once you know the floor. Raising a price you can’t defend is how you lose the customers you wanted to keep.
None of the three is a website job. They are a bookkeeping job, a phone job, and a nerve job, in that order. What a site does is stop you paying twice for leads you already generated, which is the part Websites That Book Jobs walks through, and the numbers from shops running it are there if you want to see it working before you believe it.
Rates by trade and region are public if you want a sanity check against your own: the Bureau of Labor Statistics wage data is the source most of the “average pay” articles are quietly quoting.
Frequently asked questions
What’s the difference between break-even hourly and effective hourly?
Break-even hourly is what you have to make per hour to cover costs. Effective hourly is what you actually made per hour across every hour the business ran. Same denominator, different top line. The gap between them is your profit per hour, and it is the fastest read on whether a year worked.
Do I count my own pay as a cost?
Yes. If you leave yourself out, break-even comes back low and flattering and the business looks profitable while you go unpaid. Put in what you would have to pay somebody to do your job, then add what the owner’s seat is worth on top.
How often should I run these numbers?
Monthly. Once is a curiosity. Run it every month and you can see whether a change you made actually moved anything, which is the only reason the number is worth working out at all.
My close rate changes month to month. What do I use?
Use last month. Not your best month, and not the number you would like it to be. The point of the exercise is a floor you can trust, and a flattering input gives you a floor that isn’t there.