How to calculate your billable hourly rate

Why the wage is the wrong starting point

Many owners set an hourly rate by taking what a technician earns and roughly doubling it, or by checking what competitors charge. Both methods ignore your own costs. The median HVAC mechanic and installer earned $29.33 an hour, or $61,010 a year, in May 2025^[2], but the company's real cost for that hour is much higher once payroll taxes, workers' compensation, health insurance, paid time off and retirement contributions are added.

National data show the gap. US private employers' total compensation costs averaged $46.89 per hour worked in June 2026, of which $14.07, or 30.0%, was benefits^[1]. And that is only the cost of the worker. A service company also pays for vans, fuel, tools, dispatch, the office, insurance, software and marketing, and recovers almost all of it through the hours technicians bill.

Payroll levels differ widely by trade, which is one reason borrowed rates rarely fit. Average annual payroll per employee at employer establishments in 2023 ranged from $30,089 in janitorial and cleaning services to $76,545 at electrical contractors^[3].

The formula

The steps below turn that formula into numbers you can pull from payroll and your profit and loss statement.

1. 01

   Loaded labor cost per paid hour

   Start with each tech's hourly wage. Add employer payroll taxes, workers' compensation, health insurance, retirement contributions, paid time off and any other benefits. Your payroll provider can give you the annual employer cost per employee; divide it by paid hours.

2. 02

   Paid hours per year

   Use actual paid hours for each tech, including overtime, from last year's payroll.

3. 03

   Billable efficiency

   Divide hours billed to customers by hours paid. Drive time, shop time, training, meetings and callbacks are paid but usually not billed.

4. 04

   Labor cost per billable hour

   Annual loaded labor cost divided by billable hours (paid hours times billable efficiency).

5. 05

   Overhead per billable hour

   Add every overhead cost for the year, including the owner's market-rate salary, office wages, vehicles, rent, insurance, software and marketing. Divide by the total billable hours of all technicians.

6. 06

   Break-even rate

   Labor cost per billable hour plus overhead per billable hour. Below this rate, every billed hour loses money.

7. 07

   Add profit

   Divide the break-even rate by (1 minus the net profit margin you want), then round.

Worked example

Example: in this fictional company, the technician's $32 wage becomes a $170 billable rate. The jump is not greed: half of the break-even rate is overhead, and every unbilled hour is paid for by the billed ones. A competitor's $120 rate would mean losing money on every hour here, unless the competitor has much lower overhead or higher efficiency.

Efficiency moves the rate more than wages

The same company's rate changes sharply when billable efficiency changes, because both labor and overhead are spread over billable hours.

Example reading: raising efficiency from 60% to 70% lowers the required rate by about $24 an hour, more than a several-dollar raise for every technician would add. That is why dispatch, route planning, carrying the right parts and fewer callbacks are pricing tools as much as operations tools.

Ways to raise billable efficiency without overworking anyone:

• Tighter routes and zone days, so less of the day is driving.
• Better first-call scoping, so techs arrive with the right parts and fewer jobs need a second trip.
• Stocking trucks to a standard list and restocking daily.
• Tracking callbacks by tech and job type, and training on the causes.
• Selling maintenance agreements that fill slow periods with paid work.

Margin, not markup, for the profit step

The last step is where many calculations go wrong. For example, if you want 15% of the price to be profit, dividing break-even by 0.85 gets you there. Multiplying by 1.15 adds a 15% markup, which produces only about a 13% margin.

Example: on the fictional company's $144.12 break-even, dividing by 0.85 gives $169.55; multiplying by 1.15 gives $165.74. The $3.81 difference per hour, across 7,488 billable hours, is about $28,500 of profit the owner thought was in the price. The markup vs. margin guide covers the conversion in more detail.

Common mistakes

1. Leaving out the owner's salary. If the owner works in the business, a market salary belongs in overhead; profit is what is left after that.
2. Using paid hours. Spreading costs over paid hours instead of billable hours makes the rate look lower than it must be.
3. Ignoring seasonality. If techs are idle or doing unbilled work in shoulder seasons, use annual billable hours, not a peak-month snapshot.
4. One rate for every trade. Electricians, HVAC techs and helpers carry different loaded costs; some companies use separate rates or crew rates.
5. Forgetting that parts carry their own margin. Price parts with a parts markup matrix and keep the labor rate as a standalone calculation, so each one covers its own costs.

Crew rates, helpers and apprentices

Two-person jobs need their own rate. Run the same calculation for a lead plus helper: add both people's loaded labor cost per billable hour, add overhead per billable hour once for the crew (or a share agreed with your accountant, since a crew uses one truck), then apply the profit margin. Price crew tasks in your book with the crew rate and the crew's standard time, rather than doubling a single-tech price.

Apprentices and new techs are slower, so their billable efficiency is lower and their cost per billable hour can be higher than an experienced tech's even at a lower wage. Do not charge customers less for a slower tech under flat rate; the price is for the task, and the training cost is an overhead the company carries on purpose.

Using the rate in conversations

The billable rate is an internal number. Customers see task prices, not the rate, under flat rate. Under T&M or not-to-exceed quotes they do see it, and the question "Why is it so much an hour?" comes up. A calm, honest answer works: "That covers the technician, the stocked truck, the office that scheduled you and the guarantee on the work, not just the hour of labor." Keep that answer consistent across the office and the field, and never quote a reduced hourly rate on the phone to win a job.

When to recalculate

Recalculate at least once a year, and whenever a big cost changes: a new hire in the office, a new truck lease, an insurance renewal or a pay raise. Wage pressure is ongoing; average hourly earnings of production and nonsupervisory employees at US specialty trade contractors reached $39.05 in September 2026, up 4.7% on a year earlier^[4]. A rate set two years ago and never revisited is very likely too low.

Once the rate is set, use it everywhere: in the flat-rate price book, in T&M quotes and in project estimates. A company that uses one rate for flat-rate tasks and a lower one for hourly work is usually subsidizing the hourly work without knowing it.

A quick monthly check

Each month, compare the rate you need with the rate you are actually earning. Divide total labor revenue by total paid technician hours to get your effective rate per paid hour, then multiply your billable rate by your billable efficiency for the same month. If the effective rate falls well below that figure, the gap is coming from discounts, underpriced tasks, unbilled time or slow jobs. Look at the gap by technician and by job type before changing any prices.