The starting mistake: dividing the wage by the hours
A technician earning $55,000 a year, divided by 2,080 paid hours, comes to $26.44 an hour. That number is useless for setting a rate, and it is the one many people use.
Two things are missing: what it really costs to employ them and the hours you can really bill.
Step 1. The fully loaded cost
Example
| Item | Per year |
|---|---|
| Wages | $55,000 |
| Payroll taxes and insurance: Social Security, Medicare, unemployment, workers’ comp | $6,600 |
| Benefits: health insurance and retirement | $12,000 |
| Vehicle: lease, fuel, insurance and maintenance | $12,000 |
| Tools, safety gear and uniforms | $1,200 |
| Phone and software licenses | $900 |
| Training and certifications | $1,000 |
| Share of overhead: office, dispatch and admin | $9,000 |
| Total | $97,700 |
The real cost is almost double the wage. Overhead is the item people forget most, and it pays for whoever dispatches, invoices and answers the phone.
Step 2. The hours you can bill
Paid hours (52 weeks × 40 h) 2,080 h − Holidays and paid time off −160 h − Sick days and absences (average) −40 h − Training −40 h − Travel you cannot bill −400 h − Shop time, paperwork and meetings −300 h = Billable hours 1,140 h
Out of 2,080 paid hours, 1,140 are billable: about 55%. That percentage is the most important number in this article, and few companies know their own.
Step 3. The real cost per hour
$97,700 ÷ 1,140 h = $85.70 an hour
That is your break-even point. Charging $80 an hour is not a thin margin: it is losing money on every hour.
Step 4. From cost to rate
On top of cost you need to add margin and a buffer for the work that never gets billed: repeat visits, hours nobody recorded and hours recorded wrong.
| Item | Amount |
|---|---|
| Cost per hour | $85.70 |
| Target margin (25% on cost) | $21.43 |
| Buffer for unbilled hours (10% on the above) | $10.71 |
| Hourly rate | $117.84 |
The two levers
Raising your rate is hard: the market sets the price and customers compare.
Raising billable hours is in your hands. Going from 1,140 to 1,254 hours, 10% more, brings the cost per hour down to $77.91. Those hours are usually in four places:
- Work orders that are not filled in, or filled in badly. Compared with a timer, the gap usually goes down.
- Repeat visits because of a missing part or missing information.
- Poorly planned travel. See how to plan your technicians’ routes.
- Office time that could be done on the phone, on site.
Run the numbers with your own data
Pick one technician and pull their real costs for the last 12 months and the hours actually billed. It takes an afternoon. The conclusion is often uncomfortable, and it is always useful.
If your hourly rate is below cost, you have two options, and neither is to carry on as before. And if you cannot do the math because hours are not logged, that is the first thing to fix.
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