The most critical thing contractors must pay attention to is billable hours, noted Ruth King during her Feb. 6 presentation at the 2023 AHR Expo in Atlanta. Training and meeting hours are not billable. Neither are vacations, holidays or sick days.
She stressed that the net profit per hour method — the profit generated for each billable hour — is the only way to “price for profit,” and that percentages on a profit and loss statement can be deceiving. This is where billable hours come in; determine how many billable hours you had last year and whether you're satisfied with that number.
“Keep an open mind; decide on the net profit per hour you want to earn,” she said. “Gross margins might look good, but pay attention to the revenue per hour — it’s the dollars that matter.”
Overhead costs per hour are calculated by the total overhead costs divided by the number of billable hours. Use this calculation to determine a profitable selling price:
net profit per hour + overhead costs per hour = gross profit per hour + direct costs = selling price