Start with cost, not the market
A competitor’s rate tells you what they charge. It does not tell you what an hour costs your company. Build your rate from your own numbers first, then decide how it compares.
The four building blocks
- Pay rate: what you pay the officer per hour.
- Payroll burden: employer taxes, workers’ compensation, benefits and paid time off, usually expressed as a percentage of pay.
- Overhead: supervision, insurance, uniforms, vehicles, software, recruiting, training and office costs, spread across billable hours.
- Margin: what the company keeps after the work is delivered.
A worked example
The figures below are an example only. Your burden and overhead will differ by state, insurance and company size. Confirm yours with your accountant.
| Line | Per hour |
|---|---|
| Officer pay rate | $18.00 |
| Payroll burden at 24% | $4.32 |
| Overhead allocation | $3.10 |
| Cost per hour | $25.42 |
| Bill rate at 22% margin ($25.42 ÷ 0.78) | $32.59 |
Margin is not markup
A common mistake is adding 22% to cost and calling it a 22% margin. Adding 22% to $25.42 gives $31.01, which is only an 18% margin. To get a true margin, divide cost by one minus the margin, as in the example.
Over thousands of hours a year, that difference decides whether a contract funds your growth or quietly drains it.
Check the rate against the contract
- Does the contract require overtime coverage, holidays or armed officers at a different pay rate?
- Are there site-specific costs, such as a patrol vehicle or special equipment?
- How quickly does the client pay? Long payment terms cost you cash.
- Revisit rates at every renewal. Wages and insurance rarely go down.