How to calculate a shop labor rate
Divide your yearly costs plus target profit by the hours you can actually bill. Billable hours, not hours on the clock, decide the rate.
The formula
Labor rate = (annual overhead + technician wages and benefits + target profit) ÷ annual billable hours.
Illustrative example
Made-up numbers: $240,000 overhead, $260,000 tech pay and benefits, $100,000 target profit = $600,000. Three techs at 2,000 paid hours each, billing 70% of them = 4,200 billable hours. $600,000 ÷ 4,200 ≈ $142.86 per hour. Use your own figures.
Why billable efficiency matters
If billable hours drop to 60% in the example (3,600 hours), the needed rate rises to about $166.67. Improving workflow can matter as much as raising prices.
Common questions
- Should a diesel shop charge more?
- Base it on your costs: heavier equipment, tooling, insurance and space usually raise overhead, which the formula reflects.
Sources & review status
Written from general engineering principles. Modern source citations are pending editorial review.
Original Repairius explanation. Not yet reviewed by a qualified technician; not a substitute for the maker's service information.