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Labor rate calculator: break-even and target billable rate

What an hour has to be billed at to cover the tech, the hours that cannot be billed, and the business behind them — then the rate that leaves the profit you want.

Your field techs

Across the techs who bill, weighted by hours.

Payroll taxes, workers’ comp, benefits, PTO, as a share of pay.

2,080 is 40 hours a week, all year.

Drive time, shop time and callbacks are not billable.

The business

Office staff, rent, trucks, insurance, software, marketing. Not materials.

As a share of the rate, after everything.

In Everglow

Know which jobs covered the rate, and which ones did not.

Time logged on a job is costed at each person’s loaded rate and lands on that job’s margin, next to its materials and expenses. The Margin page lists billed against cost for every job, worst first, so the jobs that ran long or were priced under the rate are the first thing you see.

Open a demo company and sort its Margin page.

Job profit, worst jobs first, for a demo roll-off company: 35.8% kept, $320.00 from $895.00 billed, against a 45% target.Job profit, worst jobs first, for a demo roll-off company: 35.8% kept, $320.00 from $895.00 billed, against a 45% target.
A demo company’s Margin page.
How it works

Why your rate has to be so much higher than the wage

A tech’s wage is the smallest part of what an hour costs. Burden adds to every paid hour. Then only some of the paid hours can be billed, so the billed ones have to carry the rest. Then the whole business — the office, the trucks, the insurance, the software — is paid for out of those same billed hours. The break-even rate is where all of that is covered and nothing is left; the target rate adds the profit you want as a share of the rate.

How to calculate it by hand

Loaded cost per paid hour = pay × (1 + burden)
Billable hours per tech = paid hours × billable share
Labor per billable hour = loaded cost × paid hours ÷ billable hours
Overhead per billable hour = annual overhead ÷ (techs × billable hours)
Break-even rate = labor per billable hour + overhead per billable hour
Target rate = break-even ÷ (1 − target net profit)

With the example numbers: $30.00 pay and 30% burden is a loaded cost of $39.00 an hour. 2,080 paid hours at 65% billable is 1,352 billable hours per tech, so each billable hour carries $39.00 × 2,080 ÷ 1,352 = $60.00 of labor. Four techs bill 5,408 hours a year between them; $180,000 of overhead over 5,408 hours is $33.28 an hour. Break-even is $93.28. For 15% net profit, $93.28 ÷ 0.85 = $109.75 an hour.

Common mistakes

  • Adding profit as a markup. $93.28 × 1.15 is $107.27, which leaves 13.0%, not 15%. A profit target is a share of the rate, so divide by (1 − target).
  • Assuming every paid hour is billable. At 100% billable the same shop’s break-even looks like $60.63 — $32.65 an hour too low.
  • Leaving the owner out of overhead. If the business could not run without your office time, that time has a cost.
  • Using the lowest-paid tech’s wage. Use the average across the people who bill, weighted by their hours.

What good data looks like

Burden from payroll reports, not a guess. Overhead from last year’s profit and loss, with anything that belongs to a specific job (materials, subs, permits) taken out — those are priced on the job. Billable share from time actually clocked against jobs over a few months, because a busy week flatters it and a slow one does not.

How to improve it

  • Recover billable time before raising the price: tighter routes, fewer supply-house runs, fewer callbacks. The calculator shows what five more points of billable time are worth to your break-even.
  • Charge for the time that is currently free: trip charges, diagnostics, after-hours premiums.
  • Price materials separately, at their own margin. This rate covers labor and overhead only.
Questions

Common questions

What is labor burden?

Everything an hour of labor costs you on top of the wage: payroll taxes, workers’ compensation, liability insurance tied to payroll, health insurance and other benefits, paid time off. Your accountant or payroll provider can give you the figure as a percentage of wages.

What is a billable hour?

An hour you can charge a customer for. Drive time between jobs, time at the supply house, shop time, training and callbacks you cannot charge for are all paid hours that are not billable. The share of paid hours that are billable is often called billable efficiency.

Should overhead include what I pay myself?

Include what you pay yourself for running the business — the office, the selling, the estimating — because someone would have to be paid to do it. Profit is what is left after that, which is what the target net profit is for.

Does this work for flat-rate pricing?

Yes. A flat-rate price is a task’s standard hours times an hourly rate, plus materials at their own margin. The target rate from this page is the rate to build those prices from.

Related

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