How to Set Your Shop Rate: Overhead, Markup, and Margin for Trim Companies

To set a defensible shop rate, don't start with what the guy down the road charges. Add up your annual overhead, decide the net profit margin you want to keep, divide by the hours you can actually bill in a year, and let that math hand you a number. That number is your effective billable hourly rate — the floor every bid has to clear. "Materials plus a number I feel okay about" is how good carpenters go broke slowly, because it never accounts for the truck, the insurance, the drive time, or the days you don't bill at all.

What is a shop rate, and how is it different from what I pay myself?

Your shop rate is what a customer pays for an hour of your company's time. What you pay yourself is a wage — one line inside the cost of doing business. They are not the same number, and confusing the two is one of the most common pricing errors in the trade. If you decide you're "worth $45 an hour" and bill $45 an hour, your company keeps nothing, because that $45 has to also cover your insurance, your fuel, your tools, your phone, your accountant, and every hour you spend estimating instead of installing.

Think of it in three layers. There's the direct labor cost (what the work actually costs you in wages plus payroll burden), the overhead (everything the business spends whether or not you're on a job), and the profit (what's left to reinvest, save, or pull out). Your shop rate has to fund all three from the billable hours you have available. Skip a layer and you'll feel busy and broke at the same time.

How do I calculate my overhead?

Add up every dollar your business spends in a year that isn't the direct wage for time on a job. Pull twelve months of bank and card statements and total the recurring costs: general liability and workers' comp insurance, vehicle payments and fuel and maintenance, tool replacement and consumables, phone and software, accounting and legal, advertising, rent or shop costs, and your own admin and estimating time that never gets billed to a customer.

Don't guess. A trim operation with a truck, real insurance, and a decent tool inventory can carry overhead well into the tens of thousands a year before a single baseboard goes up — for a lot of one- and two-person shops that lands somewhere in that range, and it's usually higher than the owner expects. Two things owners routinely forget: tool depreciation (your saws and nailers wear out and have to be replaced from somewhere) and their own non-billable hours. Estimating, driving to the supply house, chasing payment, and answering the phone are all real costs even though no customer is paying for that specific hour.

What are billable hours, and why do they wreck the math?

Here's the part almost nobody formalizes: you cannot bill 40 hours a week, 52 weeks a year. Between estimating, driving, weather, callbacks, slow stretches, holidays, and sick days, the share of paid clock hours that actually land on a customer's invoice — your utilization — is realistically well under the full week for most small trim shops, often somewhere in the rough neighborhood of 55 to 70 percent. Don't take those figures as a benchmark, though — the honest way to find yours is to look back at last year: total hours you were "at work" versus hours you actually invoiced.

Say, for a rough illustration, one carpenter is available roughly 2,000 hours a year but only bills about 65 percent of them. That's roughly 1,300 billable hours — not 2,000. Every fixed dollar of overhead and every dollar of target profit has to be recovered across those billable hours, not the full clock. This is exactly why a rate that "feels high" per hour is often still too low: you're spreading the whole cost of the business across far fewer hours than you think. It's the same blind spot behind job costing for trim companies — the hours you don't track are the ones eating your margin.

Markup vs. margin — what's the difference and why does it matter?

This is where a lot of money leaks out, because the two words get used as if they mean the same thing. They don't.

• Markup is measured against your cost. If a job costs you $100 and you add 40 percent markup, you charge $140.
• Margin is measured against your price. On that same $140 sale, your $40 of profit is only about 29 percent of the price — so a 40 percent markup is roughly a 29 percent margin, not 40.

The conversion to keep in your head: margin = markup / (1 + markup), and going the other way, markup = margin / (1 − margin). So if you actually want to keep a 40 percent margin, you have to apply about a 67 percent markup, not 40. Owners who mark up 20 or 30 percent thinking they're "making 20 or 30 points" are quietly making less than that, and it compounds on every job. If you remember one rule of thumb: to hit a target margin, divide the margin by one-minus-itself to get the markup you actually charge.

How do I actually build the rate, step by step?

Here's the whole thing as an illustrative walk-through. Use your own real numbers — the figures below are round placeholders to show the shape of the math, not a benchmark to copy.

1. Total your annual overhead. Say it comes to $60,000 for the year (insurance, truck, tools, software, admin, non-billable time).
2. Set your direct labor cost. Say you want to earn $65,000 as a fair wage for the work, plus payroll burden — call the fully-loaded figure $75,000.
3. Add overhead and labor. $60,000 + $75,000 = $135,000. That's your annual cost to keep the doors open and the work done.
4. Divide by billable hours, not clock hours. At 1,300 billable hours, $135,000 ÷ 1,300 ≈ $104/hour. That's your breakeven rate — charge exactly this and profit is zero.
5. Add your target net margin. If you want to keep a 20 percent net margin, don't add 20 percent — divide by (1 − 0.20). $104 ÷ 0.80 = $130/hour. That's your shop rate.

Notice how far $130 is from the "$45 I'm worth" number a lot of owners start with. The gap isn't greed — it's the truck, the insurance, the empty weeks, and the profit that lets the business survive a slow quarter. If your market genuinely won't bear the rate the math produces, the answer is rarely to slash the rate; it's to raise your utilization, trim overhead, or move upmarket toward work that values the craft. Cutting the rate just relocates the loss.

Should I quote hourly or by the job?

Most trim work should be quoted as a fixed price per job, not billed hourly — customers hate open-ended clocks, and hourly billing punishes you for being fast and skilled. But you still build every fixed price up from your shop rate. Estimate the hours honestly, multiply by your rate, add materials with their own markup, and that's your bid. The shop rate is the engine underneath the number; the customer just sees the total. This is the discipline that separates shops that grow from shops that stay stuck, and it's closely tied to why trim companies underprice their work in the first place. If you want to sanity-check what your finished number should look like to a customer, it helps to know how much finish carpentry costs in the broader market.

How often should I revisit the number?

At least once a year, and any time a major cost moves. Insurance renewals climb, fuel moves, tool prices jump, and your own wage should rise with your skill. A rate you set two years ago is very likely underwater today. Owners who bake a modest annual increase into every new bid keep pace; owners who "haven't raised rates in a few years" are quietly funding their customers' savings out of their own retirement. Rerun the five steps every January with fresh overhead totals and last year's real utilization, and adjust.

Bottom line

Your shop rate isn't a feeling or a comparison to the next carpenter — it's arithmetic. Total your overhead, add a fair loaded wage, divide by the hours you can genuinely bill, then divide again by one-minus-your-target-margin. Learn the markup-to-margin conversion so you stop leaving points on the table, and rebuild the number every year. Do that and every bid starts from a floor you can defend instead of a hunch you'll regret.

If you want a second set of eyes on your overhead, your utilization, and the rate the math is actually telling you to charge, that's exactly what a free Discovery Call is for — and you can see how we work with owners on the For Trim Companies page.