Ask a contractor a simple question: how much does one of your workers cost you per day?
Most will blurt out the wage. "About 100 a day." It's almost a reflex in the trade — and it's almost always wrong. When we first worked out, item by item, what a workday really costs, the "100-a-day" worker came out well above 160. The difference isn't trivial: it's what decides whether a quote turns a profit or amounts to free labor.
Why wages aren't your real cost
Gross wage is just the tip of the iceberg. Add employer contributions. Then add the days your worker costs you money but produces nothing: paid leave, public holidays, sick days. Add rain days, when the crew is standing around because you can't pour concrete. Loading up, traveling from the yard to the site, hunting for tools in the morning. Work clothes, protective gear, the small tools they use up.
And here's the most important trick in the calculation that most people get wrong: you shouldn't divide by annual working hours — you should divide by actual productive hours.
On paper, a year has roughly 2,000 working hours. But subtract leave, holidays, sick days, downtime, travel. What's left, in a good case, is 1,600–1,700 hours where your worker is actually on the project — doing work you can bill to someone.
In other words, you need to divide the total annual cost by productive hours. That number is your real hourly rate. The industry calls this the overhead-loaded hourly rate — and every year, industry associations publish a recommended minimum for it, and it's well above what most people calculate in their heads for good reason.
Once you work this out properly, two things happen. First you get scared. Then you understand why there was no money left on the projects you thought went well.
Machine hours: the same thing, just bigger
With a worker, at least you feel that it costs money, because you transfer the wage every month. With machines, it's even sneakier.
An excavator doesn't only cost money when it's working. It costs money even when it's sitting on the yard: depreciation, insurance, mandatory servicing, tires, wear parts. These are fixed millions every year — and if the machine only logs a few operating hours a year, that fixed cost gets spread over very few hours. The result: the real hourly cost of a rarely used machine can be brutally high, while your quote is built on an hourly rate that just "feels right."
When we split our machines' total annual cost across actual operating hours, the real hourly rates that came out were wildly different per machine — some worked well below market rental rates, while for others, low utilization drove the hourly rate up. You can't see this by gut feeling. Only the numbers reveal it, and that's exactly the information you need to decide well: which machines are worth owning, and which are better off rented.
Without real cost, pricing is guessing
And this is where everything comes together. If you don't know your real overhead-loaded labor rate and machine-hour rate, your quote isn't a calculation — it's a guess. It can end one of two ways:
Either you aim too high and don't win the job. Or you aim too low, win it — and from then on, every hour worked bleeds money into the project, you just don't know it yet. As I wrote in the previous article: this is exactly the kind of thing that only shows up at month-end. Or not even then.
The good news is you don't have to recalculate this over and over. You need to do it properly once — gather annual costs, estimate productive hours, divide — and after that you just maintain it, whenever wages change or a new machine arrives. You don't need to be an Excel wizard. You just need to commit one afternoon to it.
We built this calculation into Tektana: real-cost rates sit behind every quote and every post-costing analysis, so we're not pricing by feel — we're pricing from numbers.
Next up, we look at what's the biggest blind spot for nearly every contractor: the cost of vehicles and machinery — who pays for idle time, where the fuel disappears to, and why fleet cost almost never gets split across projects. Read the full article.