A technician's wage is not what the technician costs you, and a paid hour is not a billable hour. The true cost of one hour you can charge to a customer is higher than the wage in two steps: first employment costs on top of the wage, then the hours that are paid but cannot be billed. This calculator works through both and shows the rate a target margin would need.
Work out the cost of a billable hour
The formulas
- Loaded cost per paid hour = wage × (1 + labor burden)
- Annual cost = loaded cost per paid hour × paid hours
- True cost per billable hour = annual cost ÷ billable hours
- Rate for a target margin = true cost per billable hour ÷ (1 − target margin)
Worked example
Illustrative numbers only. A technician earns $30 an hour. Employment costs on top of the wage (payroll taxes, insurance, benefits, vehicle and tools) add 30%, so each paid hour costs $30 × 1.30 = $39. Paid for 2,000 hours, the technician costs $78,000 a year.
Only 1,300 of those hours can be billed, which is 65% of the paid hours. The cost of each billable hour is $78,000 ÷ 1,300 = $60, not $39 and not $30. A rate that earns a 40% gross margin on that labor is $60 ÷ (1 − 0.40) = $100 an hour.
What each input should be
- Wage: the hourly pay rate. For salaried staff, divide annual pay by paid hours.
- Labor burden: your own figure. Build it from your books, as the labor burden calculator and the guide to calculating labor burden show, rather than borrowing someone else's percentage. A technician with a vehicle, fuel and tools carries more than an office role at the same wage.
- Paid hours: the hours you pay for in a year, including paid time off if you pay for it. Full time at 40 hours for 52 weeks is 2,080.
- Billable hours: the hours you actually invoice. If you do not track this yet, a sample of recent invoices against the paid hours will give you a starting number, and tracking time on site will give you a better one.
What this does not include
This is the cost of the technician's labor only. Overhead such as office rent, software, advertising, insurance for the business and unbilled owner time is not in it, so a rate built only from this number leaves nothing for them. The target margin field is a gross margin on labor; your overhead has to be covered out of that margin. Parts and materials are priced separately; see markup vs margin.
How to use the result
- Set a floor. The true cost per billable hour is the lowest rate at which a technician's time does not lose you money.
- See what utilization is worth. Raise the billable hours field and watch the cost of each billable hour fall. Scheduling and routing that turn idle hours into billable ones lower your cost without changing a price.
- Check your price book. Compare the rate behind your flat-rate prices with this cost. The flat-rate price calculator builds a task price from a rate.
Common mistakes
- Using the wage as the cost. It leaves out both the burden and the unbilled hours.
- Counting every paid hour as billable. Driving, loading and gaps in the schedule are paid but cannot be charged, so the billable share of paid hours is below 100%.
- Borrowing a burden percentage. Yours depends on your trade, region, benefits and vehicles. Calculate your own.
- Forgetting overhead. The rate that earns a margin on labor still has to pay for the rest of the business.
FAQ
What is the true cost of a technician?
The wage plus employment costs, divided by the hours that can be billed to customers. The calculator above shows each step.
Why is the cost of a billable hour higher than the loaded cost per paid hour?
Because some paid hours cannot be billed: driving, loading the truck, paperwork, training, waiting for parts and gaps in the schedule. The whole annual cost is spread across only the billable hours.
What should my billable hours be?
Your own records are the only reliable answer. Use the real number from your invoices and your time records, not a general rule.
Does this include overhead?
No. It is the labor cost only. Overhead has to be covered out of the gross margin you set.
This calculator is for education and planning. It runs entirely in your browser; nothing you enter is sent anywhere. It is not tax or accounting advice.