Your $25 An Hour Tech Costs You $45. Here Is The Math.

Twenty five dollars an hour. Say that is what your best tech makes.

That number is not what he costs you. It is not even close.

Here is the pattern I see in shops doing $500,000 to $5 million. The owner prices off the wage, because the wage is the only labor number anybody ever handed him. That is not a character flaw. You learned a trade. Nobody sat you down and taught you cost accounting.

So here is the whole formula, line by line, for one technician. Last week's payroll register and twenty minutes, and you have your real number.

Step 1: Fully Loaded Labor Cost, per technician

Your real cost per employee hour is more than the wage. Add every burden below.

Line B, payroll taxes. Typically 10 to 13 percent of base wage. Employer Social Security, Medicare, unemployment. Your exact number is on your last 941 and your state unemployment notice, so get it from your accountant before you price off this line.

Line C, workers' comp. This one moves hard by trade. HVAC and plumbing usually land 8 to 12 percent. Roofing and electrical run 12 to 18. Pull your actual declarations page, or call your carrier, and use your rate, not mine.

Lines D and E are per hour costs. Take the monthly dollar amount and divide by monthly hours worked. Enter zero on benefits if you do not provide them. That is common and it is fine.

Base wage is typically 60 to 70 percent of your true labor cost. On this tech it is 76 percent, and he has no truck allowance and no phone on the company plan.

The line the wage never shows you

Now the part almost every rate calculation skips.

You pay him for 160 hours a month. He does not bill 160 hours a month. Nobody does.

Think about a normal Tuesday. Forty minutes of windshield between the first two calls. A supply house run for a capacitor that should have been on the truck. The second trip for a fitting nobody stocked on a repipe. Twenty minutes at the permit counter for the electrician. The dump run at the end of a tear off. The callback you are not going to charge for.

A full time tech typically bills 105 to 135 hours a month, not 160 to 180. Use a conservative number until you have tracked your own. Say he bills 116.

• $32.96 x 160 paid hours = $5,273.60 a month in loaded labor cost
• $5,273.60 divided by 116 billable hours = $45.46

There is your $45. The tech you think costs $25 costs you $45.46 for every hour you can actually put on an invoice. You have not paid the rent yet.

Step 2: Monthly Overhead

Everything it costs to keep the doors open. If it is not tied to a specific job, it is overhead. Two trucks, two techs, one owner:

Rent, storage or shop $500. Vehicle payments, all trucks, $1,800. Vehicle insurance $400. Fuel $600. Vehicle maintenance and repairs $300. Tools and equipment $250. Software, phones and technology $350. Admin and office $200. Marketing and advertising $500. General liability and E&O insurance $400. Owner Salary $6,000.

Total Monthly Overhead: $11,300.

That owner salary line is where this goes wrong most often. Pay yourself a REAL number. If you take draws instead of payroll, put your target monthly draw in anyway. Your time has a cost either way.

When in doubt, include it. Underestimating overhead is the most expensive pricing mistake in the trades.

Step 3: Billable Hours Per Month

Hours billed, not hours worked. Two techs at 116 each:

2 x 116 = 232 total billable hours per month.

This is the denominator that turns overhead into a per hour burden, so be honest with it. Every hour you add here that your team does not really bill understates your rate.

Step 4: Your Required Hourly Rate

Line K is the one people get wrong. Divide by one minus the margin. Do not add the margin. Marking $94.17 up 20 percent gives $113.00, and $113.00 carries a 16.7 percent margin, not 20. That gap hides for years.

Line K is a FLOOR, not a target. Urgent calls, attic work in August, a panel swap in a 1962 house, those are line M.

Reality Check: what are you charging right now?

Put your current rate in and look at the gap. Say you charge $95.

$95.00 minus $117.71 is negative $22.71 an hour.

The gap I see most often in shops this size is $15 to $30 an hour. This one landed right in the middle of that band.

Now look at $95 against your break even of $94.17. You are clearing 83 cents an hour. Across 232 billable hours that is $192.56 a month. You are running two trucks, carrying a payroll and answering the phone at 9pm for $2,310.72 a year.

The other direction is the real story. Close the $22.71 gap and it is $22.71 x 232 hours = $5,268.72 a month. $63,224.64 a year, from the same trucks, the same techs and the same call volume.

Nothing about your crew changed. Only the number on the invoice did.

What to do this week

Do not rebuild your whole price book. Do one thing.

Pick your highest paid field employee. Run lines A through F on him tonight. Then pull your bank statement and build the overhead list, including the salary you should be paying yourself. Two numbers, one evening.

Print it and keep it with your price sheet. Revisit it every six months, and every time you hire, buy a truck or give a raise. Your floor rate moves the day any of those happen.

Progress > Perfection. One tech, tonight, is enough to start.

Big Picture: a rate that is $23 light does not feel like anything. No bad day, no angry customer, no moment where you notice. It quietly takes $63,000 a year and you work Saturdays to make it up.

I spent seven years as a licensed HVAC service technician. The wage on the check was the only labor number I ever saw. It took running an operation to learn how far off that number really is. What is your real number?