Break-even is overhead divided by billable hours
Overhead is the money that runs whether or not anyone is invoiced - software, insurance, accounting, workspace, marketing. At $6,000 a month across 100 billable hours the break-even rate is $60 an hour, and at that rate the business neither makes nor loses money.
Billable means hours that actually produce an invoice. Admin, sales calls and bookkeeping do not count, and treating them as billable is the most common way a rate comes out too low: the costs stay the same while the divisor grows.
At break-even every billable hour has paid its share of the bills and nothing more. There is no replacement for equipment, no buffer for a slow month and nothing left for the work itself, which is why the page prints a second rate beside it.
The target rate adds the profit you want
Add the profit you want from the month to overhead and divide by the same hours. With $4,000 of profit wanted, $10,000 across 100 billable hours is $100 an hour: the rate that runs the business and pays you as well.
The distance between $60 and $100 is your real pricing freedom. Compress it toward zero and a full calendar stops paying for itself; widen it and there is room to absorb a scope change, wait out a late payer or say no to work that does not fit.
The profit figure is stated before personal income tax, because it is what the business leaves behind rather than what reaches your pocket after the return. Tax on profit belongs in a separate calculation, not folded into the rate.
When the market will not pay the target
If clients will not pay the target rate, the lever is billable hours rather than a cheaper price. Cutting admin that never invoices raises the share of each week that can be billed, so the same income funds a lower rate without giving away margin.
Pricing below break-even to win work is a trap with one honest exception: an occasional portfolio piece or a relationship that will pay later. As a habit it means someone covers the shortfall, and that someone is you.
The hours field is held between 1 and 1,000, so the division never runs on zero and a rate is always returned. A month with very few billable hours produces a very high rate, which is the arithmetic telling the truth about a short billing month rather than a fault in the page.
The monthly view behind the hourly rate
Multiply the target rate by the billable hours and you get the month the rate has to fund - which is exactly overhead plus the profit you asked for, since the division and the multiplication undo each other. The page prints that total beside both rates.
That pairing is the check worth keeping. A rate can look reasonable per hour and still fail to cover a month once the real hours are counted, and a monthly total can look healthy while the rate underneath it is below break-even.
Read it backwards to quote work: eight billable hours at the target rate is a defensible day rate, and a retainer should sit at the target rate times the hours it covers. The target is a floor, not a ceiling, and the market may still pay more.
What the break-even rate quietly leaves out
The rate computed here covers the bills you can name. It does not replace the laptop every four years, the two weeks a year with no invoices, or the pension nobody contributes to on your behalf - a rate that funds only named overhead slowly consumes the equipment and the time off. A working allowance is 5-10% of overhead added as a replacement reserve before the division, so $6,000 of overhead becomes $6,300 to $6,600 and the rate moves with it.
The divisor has the mirror-image problem. A 100-hour month assumes 25 billable hours a week, which is a full calendar with no holiday, no sick day and no sales time. Forty hours a week across 46 working weeks, minus three weeks off and five sick days, is about 1,720 hours a year, or 143 a month; if a third of those go to admin, quoting and sales, the honest divisor is nearer 95. Dropping from 100 to 80 hours raises a $6,000 break-even from $60 to $75 without a single price increase - and shows why a rate that looks generous on paper can still miss a month.
Neither correction changes the arithmetic this page does; both change the numbers you type into it. Run the rate once on the overhead you pay and the hours you can defend, then again with a 10% replacement reserve and the smaller divisor: if the two rates differ by more than a fifth, the honest answer is the higher one, and the market will tell you quickly whether it can bear it.
Danfio