A Business Bills $95 an Hour. The Owner Lives on $23. And Nobody’s Done the Division.

That math in the title? Not a trick. Not even a worst-case scenario.

It’s a trades business billing $95 an hour. Keeps $60,750 after all costs. Owner works 2,600 hours to get there.

Sixty thousand divided by twenty-six hundred is twenty-three dollars.

Nobody cooked the books. Nobody’s hiding income in a drawer somewhere.

It comes from a division almost nobody ever does.

And I can see it in the first two questions I ask.

The gap between those two answers tells me more about a business than the owner’s last three years of tax returns.

The Two Questions Nobody’s Put Side by Side

First question: What did the business bring in last year?

Owners answer that one like you’d answer your own phone number.

“Six hundred and twelve thousand.”

“One point four.”

“Just under two million. Would’ve been over if the March job had landed.”

To the nearest thousand. Without looking anything up. Without hesitating.

Second question: How many hours did you work to get it?

That one gets a different kind of answer.

A laugh, usually. Sometimes a wince.

“All of them.”

Then a guess. And the guess is always a round number. And it’s always low.

Because it counts the hours that felt like work and leaves out the ones that didn’t.

The Sunday afternoon spent quoting three jobs you won’t get.

The drive to the site that “doesn’t count” because you were listening to a podcast.

The call that was supposed to take five minutes.

The evening on the couch answering messages with the TV on, which isn’t time off… whatever it looks like from across the room.

Nobody’s done the division.

In all the years I’ve spent sitting across from people who run businesses—good people, working their asses off—I can count on one hand the number who’d divided the first number by the second before I asked.

And here’s the thing.

Each of them told me the same thing.

They’d done it once, hadn’t liked the answer, and hadn’t gone back to it.

Ever.

That should tell you something right there.

The Number Itself

The division has a name, and it’s worth knowing because it’s the one number you can’t argue with, can’t spin, can’t dress up for the bank.

Your effective hourly rate is what the business actually kept last year, divided by the hours you actually gave it.

If you take a regular wage, the top number is that wage plus any draws.

If you take what’s left, the top number is revenue minus everything it cost to run.

The bottom number is your real week—the honest one—times fifty-two.

That’s the whole formula.

It isn’t the rate you charge.

It isn’t what a business your size “should” pay its owner.

It’s simply what one hour of your life earned, after the business paid for everything and everyone else.

It’s almost always a smaller number than the one in your head.

And it’s very often smaller than what you pay the people who work for you.

Let that one sit for a second.

The Math, on a Business That Doesn’t Exist (But Could Be Yours)

Take a small trades business. Made up for the purpose, but you’ll recognize it.

Bills $95 an hour, which is fair in most of the country. Owner’s good. Busy. Phone rings.

Last year? Billed 1,250 hours.

That’s $118,750 in revenue.

Running the business cost $58,000. Van, insurance, materials, software, part-time bookkeeper, the phone bill, all of it.

So the business kept $60,750.

And since the owner takes what’s left, that’s what the owner made.

Now the second number.

Fifty hours a week is a modest guess for the owner of a busy trades business. And fifty hours a week is 2,600 hours a year.

$60,750 divided by 2,600 hours is $23 an hour.

The owner is billing $95 an hour and living on $23.

And the owner isn’t doing anything wrong.

The rate is fair. The work is good. The customers are happy.

It’s just that only 1,250 of the 2,600 hours ever reached an invoice.

The other 1,350 were real hours. Worked by a real person. And they got divided into the same $60,750 as the billed ones.

Here’s the second number the math hands you, and it’s the more useful of the two.

Turn the division around.

To bring in $118,750 across 2,600 hours, every single hour—every single one—would have had to bill at about $46.

Not $95.

Forty-six.

The distance between the rate on the invoice and the rate the year actually needed is the part of the business that never shows up on any invoice at all.

And that’s the part that’s been quietly eating your life.

What I Got Wrong, for Years, in the Other Direction

I should say where I’m standing when I say this, because I didn’t get here from a place of balance.

For most of my first career, I billed 3,500 hours a year.

Real ones. Kept in six-minute increments, the way big law firms keep them.

I knew what an hour was worth to the tenth of an hour, every day, for years.

And I loved it.

Not the counting. What I loved was the feeling of being useful. Of working harder than anyone in the building and watching it turn into results.

I was very good at it, and I’m not going to pretend I wasn’t.

What I never once did was look at what those results were actually costing.

And the thing paying for them, quietly, was my health.

My body kept its own books. And eventually, it sent the bill.

So I’ve lived at one end of this. And I’ve watched a lot of people live at the other.

The lawyer who counts every six minutes and the owner who’s never counted once look like opposites.

They’re the same mistake, made in different directions.

One lets the count run the life. The other refuses to look at the count, so the count runs the life anyway, unseen, from underneath.

There’s a middle. And it isn’t complicated.

You do the division once a year. You look at the two numbers. And then you put the calculator away.

You don’t need a timesheet. You don’t need to track your bathroom breaks.

You need to know what an hour of you earned, once, so the decisions that depend on that number get made by you and not by default.

Why the Number Is So Far Below the Rate You Charge

When an owner sees their effective rate for the first time, the reflex is to read it as an effort problem.

I must be working too slowly.

I must be taking the wrong jobs.

If I could just get more done in a day…

It’s almost never an effort problem.

And the math says why.

In the example above, the owner billed 48% of the hours they worked.

That isn’t unusual. For a lot of owner-run businesses, it’s generous.

The other half of the week is quoting. Driving. Revisions the customer didn’t pay for. Chasing the invoice. Ordering. The books. The hiring. And the conversations that had to happen so the billable work could.

None of that is slacking.

All of it is unbilled.

And unbilled time doesn’t disappear. It gets divided into the same pot of money as the billed time.

Which is how a $95 hour on the invoice turns into a $23 hour in your life.

The billed rate describes your invoices.

The lived rate describes your year.

(The customer, to be fair, has no idea the twenty minutes in the driveway went on anyone’s bill. Because it didn’t. It went on yours.)

That means the gap is a pricing and scope problem, not an effort problem.

The rate on the invoice was set for the hour at the customer’s kitchen table.

It was never set to carry the hour that got you to the table. Or the hour of follow-up afterwards.

The customer pays for the visible hour.

Nobody pays for the other one.

And the owner has been quietly covering it out of their own pay, for years, without ever deciding to.

That’s also why working more never closes the gap.

Add ten hours to the week and most of them are unbilled hours, because the billable ones were already capped by demand and daylight.

You’ve grown the bottom of the fraction faster than the top.

The number goes down.

Seeing this clearly feels worse for a week or so before it starts to feel better.

That’s normal. And it isn’t a reason to stop looking.

What Actually Moves It

Only three things change an effective hourly rate, and they map onto the three parts of the math.

1. Bill the hours you’ve been giving away.

Not all of them. But quoting, site visits, revisions past the first one, and travel past a certain radius are all things established businesses charge for and newer ones apologize for.

A minimum call-out.

A quoting fee that gets credited against the job.

A revision clause.

Each one moves an hour from the unbilled column to the billed column, which raises the top of the fraction without touching the bottom.

2. Compare your billed rate to the rate your year actually needed, and let that tell you which problem you have.

In the example, every hour had to bring in $46 for the year to come out where it did.

Put that next to what’s on the invoice, and one of two things is true.

If you bill $95 and the year only needed $46 an hour, your price isn’t the problem. The problem is that only half your hours get billed at all, and the fix is the lever above.

But if you bill $40 and the year needed $46, you’re losing money on every hour you sell, and working faster can’t fix that.

Then the first thing to change is the price list, before you touch anything else.

The instrument below gives you both numbers, so you know which of those two conversations you’re in.

3. Take the hours out of the bottom of the fraction that were never yours to work.

The books. The ordering. The scheduling. The first pass at every quote. The reminder about the unpaid invoice.

When the owner does all the unbilled work personally, the business can’t pay its owner properly, because every one of those hours gets paid at the leftover rate.

Your first thought here will be to hire someone.

And I’d ask you to wait on that.

Most of the unbilled work in a service business is the same task over and over.

The quote follows a pattern. The invoice chase is the same three messages. The schedule runs on rules you could write on an index card.

That’s exactly the work that software—and now small AI systems—do well and cheaply.

A system that drafts the quote from your notes, sends the reminder on day fifteen, and books the slot doesn’t cost you a salary, doesn’t need managing, and doesn’t call in sick.

I build these for owners, and it’s a quieter part of what I do than the diagnosis, but it’s usually where the hours actually come back from.

And here’s the part that reaches further than pay.

A business where every unbilled hour belongs to the owner is a business nobody else can run.

A buyer will notice that before they notice anything else.

So will you, the first time you try to take two weeks off.

That’s a root system, not a cut flower.

The visible part of the business is the billed hour. Whether the business outlives you depends on what happens to the hours nobody sees.

Run the Division

If you want your number, the instrument will do the math in about two minutes.

It asks for last year’s revenue, what it cost to run, what you paid yourself, and your honest week.

And it gives you both figures: what an hour of you actually earned, and what every hour would have had to bill at to produce your year.

The math happens in your browser, and nothing you type is stored.

What is your real hourly rate?

Then, if the number is bigger than the business can pay, the question isn’t about your hours anymore.

It’s about how the business is built.

That’s a different note. And it’s already written.

Common Questions

What is an effective hourly rate?

It’s what one hour of your time actually earned, after the business paid for everything else. It’s different from the rate you charge. For a business owner, it’s the money the business kept, or paid you, over a year, divided by the hours you really worked in that year. The billed rate describes your invoices. The effective rate describes your life.

How do you calculate your effective hourly rate as a business owner?

Take what you were paid over twelve months. If you don’t draw a set wage, use revenue minus running costs—what the business kept. Divide it by your real hours: your honest working week, evenings and weekends included, times fifty-two. Both numbers are usually worse than the ones you carry in your head, which is the reason the division is worth doing.

Why is my effective hourly rate so much lower than what I charge?

Because only some of your hours reach an invoice. Quoting, driving, admin, revisions, and follow-up are real hours that never get billed, and they’re divided into the same take-home as the billed ones. An owner billing half their hours at $95 is living on less than $48 before costs, and far less after. It’s a pricing and scope gap, not an effort gap.

What is the difference between billable hours and actual hours?

Billable hours are the ones a customer paid for. Actual hours are all the hours you worked, including the ones that made the billable ones possible. The ratio between them is the biggest reason an owner’s effective rate sits below their billed rate, and it’s the number to watch if you want to raise your pay without raising your hours.

How much should I charge per hour?

Start from the rate every hour would have had to bill at to produce last year’s revenue, not from what competitors charge. If that number is above your current rate, your price is wrong. If it’s well below your rate, your price is fine and the problem is how few hours get billed—which you fix with scope, minimums, and getting the unbilled work off your own plate.

The trades business in this note is invented. The math is not.