Toolboxplaybook-back-btn Playbookplaybook-back-btn Chapter 5

CHAPTER 5

Setting a Path to Maximum Profitability

To understand where you are and where you need to go to truly influence the bottom line requires an up-to-the-minute knowledge of your financials. It also requires a financial plan that leverages that data for profitability and growth.

SECTION 5 OF 7

Break-Even Rate per Sold Hour

Go a step further and see how much you’d need to charge per hour to cover both overhead and the cost of labor for all of your technicians working during billable hours. This labor calculation will give your bottom line to break even for billable time. 

Employee cost calculator: Determining hourly rate to cover tech costs

How much does an employee cost your business overall? You must begin by calculating the average hourly rate you pay your technicians, which encompasses:

  • Taxes, including FICA and income

  • Health care and additional benefits

  • Any other direct labor costs related to tech employment, such as commission or spiff payments

How to Figure Labor Cost

If technicians cost you an average hourly rate of $28—including all taxes, benefits, and other costs–and you employ five techs who work a total of 2,916 billable hours per year, you multiply your average hourly rate per tech ($28) by the total billable hours (2,916) to get your technician billable payroll cost. Add that number to your overhead cost for the grand total of expenses accrued during billable hours.

Direct labor formula: (Annual billable hours per tech) X (no. of techs) = (Total billable hours for company) X (avg. hourly rate per tech)

Employees cost calculator: 583.2 billable hours X five techs = 2,916 total billable hours

2,916 total billable hours X $28 per hour = $81,648 technicians billable payroll cost + overhead cost

Cost of employee payroll plus overhead: $81,648 for technicians + $100,000 for overhead = $181,648 total expenses

Divide that expense total by the total number of billable hours for your tech team to get your break-even labor rate. 

Results in labor costs calculator: Break-even rate per billable hour $181,648 ÷ 2,916 hours = $62.29 per sold hour

Go to Section 6: Desired Net Profit