How to calculate your loaded labor rate

Most shops set their labor rate by taking the wage they pay a tech, adding a cushion that feels right, and calling it a number. Then they wonder why a busy year still ends thin.

Here is the answer in one line: the wage is the smallest part of what an hour costs you, and the loaded labor rate is everything else added back in. It is the floor every job has to clear before you make a dollar, and it is the one number your whole price book stands on.

Is this you? You probably need this if you set your rate off the wage plus a round number, if you have no idea what percent of paid hours your techs actually bill, or if you had a busy season that somehow didn’t show up in the bank.

Jump to: what it actually is · the wage is the smallest number · how to calculate it · utilization · the markup shortcut · gross is not profit · in servicetitan

What a loaded labor rate actually is

Your loaded labor rate is the true, fully burdened cost of one hour of field work. Not the wage. Everything.

It answers a single question: before you make one dollar of profit, what does it cost you to put a tech in front of a customer for an hour? That number is your floor, and every price you set should clear it.

The wage is what you pay the tech. The loaded labor rate is what the hour costs the business.

The wage is the smallest number

Say you pay a tech 28 dollars an hour. That is the number you think about, because it is the number that hits payroll. But it is nowhere near what that hour costs you to sell.

On top of that wage sit two layers of cost that rate-setting usually forgets.

The field layer

What it takes to put the tech in front of the customer at all. It is real money whether or not the truck moves:

• Payroll taxes
• Benefits
• The truck, the fuel, and the tools in it
• Insurance

The company layer

Everything underneath the field. None of it bills a customer directly, but all of it has to come out of the hours you sell:

• The office and the phones
• Software
• The marketing that books the call
• Your own pay for running the business

Add all of that up, divide by the hours that tech can actually bill, and a 28 dollar wage routinely becomes a 90 dollar cost or more.

That gap is not a rounding error. It is the difference between a shop that makes money and one that just moves it.

How to calculate it, step by step

You can do this on a napkin or in our calculator. Either way, it is five moves:

1. Start with the wage. The hourly rate you actually pay the tech.
2. Add the field burden. Payroll taxes, benefits, the truck, fuel, tools and insurance. Now you have the field cost of an hour.
3. Add the company’s share. A slice of office, software, marketing and your own pay, spread across the team.
4. Divide by billable hours, not paid hours. Only the hours that actually get billed to a customer count.
5. Add profit to get the price. Steps one to four give you the floor. What you charge is the floor plus the margin you decide to make.

The ladder shows the climb from wage to rate:

Notice the dollar figure you actually charge is not on the ladder. That is on purpose. The ladder gets you to your cost; the price is your cost plus profit. Skip it and you are setting a selling price with no idea where your floor even is.

Utilization is the lever nobody pulls

Here is the step that quietly decides everything: the dividing. You spread the cost across billable hours, and almost nobody bills every hour they pay for.

Drive time, shop time, training, warranty callbacks, the slow Tuesday in February: none of it bills a customer, but you pay for all of it. Most trades shops bill somewhere between 60 and 80 percent of the hours they pay. That percentage is your utilization, and it is the single biggest lever on your rate.

Take the same fully loaded annual cost and the same tech, and change only the utilization:

• At 80 percent, the cost spreads across a lot of billable hours, so the cost per hour is low.
• At 60 percent, the exact same cost gets crammed into far fewer hours, and the cost per hour jumps.

Same tech, same truck, same paycheck, and your true rate moves by double digits, all because of a number most owners never measure. Guess it high and every price in your book comes out too low, automatically.

Why the two-and-a-half-times-wage shortcut lies

Plenty of people will tell you to just multiply the wage by two and a half and move on. It is fast, and it is wrong almost everywhere.

Two and a half times a 28 dollar wage is 70 dollars. We just walked a realistic example to 90 and change. The multiplier has no idea what your trucks cost, what your office costs, what you pay yourself, or what your utilization is.

A wage multiplier feels like math. It is a guess with a number taped to it.

Two shops with the same wage and very different overhead would land on the same fake rate, and at least one of them is losing money on every hour while feeling fine about it. The multiplier is a decent sanity check. It is a terrible way to set a price.

Gross margin is not profit

One more trap, because it sinks shops that have done everything else right:

• Gross margin is what is left after the direct cost of the job.
• Net profit is what is left after everything, including the office and your salary.

A rate can show a healthy looking 45 percent gross margin and still leave you 10 percent net, or less, once the overhead comes out. If your loaded labor rate only loaded the field costs and forgot the company underneath, that gross margin is a comfortable lie. The whole point of climbing the full ladder is that the office and your pay are already in the rate, so the margin you read is closer to the money you keep.

Where the number goes in ServiceTitan

This is why the loaded labor rate is not an accounting exercise you do once and file away. It is a live input. A dynamically priced service in ServiceTitan is billable hours times your loaded labor rate, plus the linked materials and equipment, so every one of those prices is built on this number.

Get it right and the book prices itself correctly across thousands of services. Get it wrong and ServiceTitan will faithfully multiply your mistake across the whole book. (If dynamic pricing is the part you are wrestling with, the dynamic pricing guide picks up exactly where this leaves off.)

Find your real number

So before you price anything, find this number for real:

• Want it in two minutes? Our free loaded labor rate calculator walks the whole ladder, shows utilization as the lever, names the gross-versus-net trap, and hands you the rate to charge for a target profit.
• Want it found and fixed across your book? That is what the free pricebook health audit is for, and what we do in a done-for-you build.

Either way, the rule holds: get the rate right first, then let the book do the rest.