The Hourly Labor Rate Calculator
Every billable hour your crew records has calculable costs behind it: wages, taxes, insurances, internal expenses (fuel, repairs, equipment maintenance, etc.), your own paycheck, and so on.
Your team
Your target billable rate
Your result will appear here
Please add: number of technicians, average technician wage, payroll tax, benefits & workers comp, desired annual owner salary, target profit margin.
Turn the rate into revenue
Build With UsThis calculator makes it easier for you to trim the numbers down to the essential: what you should be charging per hour to cover your expenses and tap into profit.
How to Use the Hourly Labor Rate Calculator
First, you need to make sure you have all the numbers down first. Once everything is accounted for, here's an example of how the Hourly Labor Rate calculator would work:
You pay your two-tech team $28/hour/technician, with a 22% tax-and-benefits load, $32,000 in annual overhead, and a combined owner draw of $75,000. While each tech works 2,080 hours per year, only, let's say, 55% of those are billable.
Based on this, if your target is a 20% profit margin, the math looks like this:
- Loaded wage: $28 × 1.22 = $34.16/hr
- Total paid hours: 2,080 hrs × 2 techs = 4,160 hrs/year
- Annual payroll cost: 4,160 × $34.16 = $142,106
- Billable hours: 4,160 × 0.55 = 2,288 hrs/year
- Total annual cost: $142,106 + $32,000 + $75,000 = $249,106
- Break-even hourly rate: $249,106 ÷ 2,288 = $108.87/hr
- Target billable rate (20% profit margin): $108.87 ÷ 0.80 = $136.09/hr
The actual numbers can change based on your financial reality, but the categories stay the same.
Three Mistakes That Can Throw the Number Off
- Using take-home wage instead of loaded wage — your technician's $25/hr take-home wage isn't the same as the loaded wage, which is what you incur. The loaded wage also includes benefits like health insurance, workers' comp insurance, and payroll taxes. An accurate labor cost calculus needs to make this distinction for the final numbers to make sense.
- Assuming 100% billable time — total work hours and billable hours are not the same thing, and no technician bills every worked hour. Drive time, callbacks, training, and admin work can add up to the timer, but won't necessarily be reflected in the actual bill.
- Not including your pay — if the math doesn't include your pay, the business could be breaking even while you will be at a loss.
What a "Normal" Billable Rate Range Looks Like
Billable hourly rates vary based on factors like trade, region, overhead structure, and even individual contracts, but:
- Billable percentage typically falls between 55% and 70% for most field service crews.
- Additional payroll tax and benefits sit at around 15-25% on top of the base wage.
- Target profit margins in the blue-collar sector are in the 15-25% range. They can go higher for emergency services, for instance, or more expensive specializations.
That said, you should adjust your rate based on your own numbers, while still accounting for the industry average as a guiding principle.
FAQs
Is a lower hourly rate ever the right call?
Lower hourly rates do make sense sometimes. But the decision to lower the rates should be the result of strategic decision-making, rather than a miscalculation, which is why using a good hourly labor calculator is a must.
Does a higher rate always mean higher profit?
Higher rates don't necessarily translate to higher profits. In many cases, they translate to less billable hours, lost leads, and lower revenue. It pays off to adjust your rates based on factors like local market, expenses, competition, and service quality. Our Hourly Labor Calculator helps you keep track of all these variables to bring the math on your side.
How does crew size change the math?
The crew size changes the total billable hours, which directly impacts your overhead spread. For instance, for a yearly overhead cost of $50,000 (rent, insurances, software subscriptions, tools, vehicles, etc.) and a 2-man team with 4,000 yearly billable hours, the overhead spread is $12.5/hr. A 5-man team with 10,000 yearly billable hours will lower the spread to $5/hr. Other than that, the math stays the same.
What if my target rate is way higher than what customers are currently paying?
If the math shows a target rate higher than what you're currently charging, the answer is that you've underpriced your services. Ignoring the math and sticking to your old prices is bad because it keeps your business at a loss, but bringing prices to your target rate abruptly could cause you to lose clients. The solution in this context is a phased rate increase. Up prices gradually, in cycles, for ongoing customers and charge new customers the full target rate.
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