First we need to figure the ratio of hours worked by a technician to the hours sold for a given time period. You should have a pretty good idea how many hours you can bill out per eight hour day. Based on the performance at my old plumbing shop I'll suggest some numbers in our example.
(1) Average Hours Worked per day _____________________ (try
8)
(2) Average Hours Billed to Customers per day ________________(try
5)
(3) Divide (1) by (2) ____________________________
(using my numbers) 8/5 = 1.6
Next we need to figure out the developed cost of a billed hour
of labor:
(4) Hourly rate paid to employee ____________________(try $20)
(5) Labor Burden on an hour of labor _________________(try $5)
(6) Benefits _________________________(try $2)
(7) Add (4) + (5) + (6) _______________________
(using my numbers) $20 + $5 + $2 = $27
(8) Multiply (7) x (3) __________________________=Cost of Billable
Hour
(Using my numbers) $27 x 1.6 = $43.20
Now we need to ask your accountant what your overhead runs
as a percentage of your total sales and how much profit you should
shoot for
(9) Overhead % ____________________ (try 20%)
(10) Profit% you want to make _________________________(try 15%)
(11) Divide (9) by 100 _____________________(Using my numbers)
20/100= .2
(12) Divide (10) by 100 ____________________(Using my numbers)
10/100 = .15
(13) Add (11) + (12) ______________________(Using my numbers)
.2 + .15 = .35
(14) Take 1 and subtract (13) ______________________
(using my numbers) 1 - .35 = .65
Now we're ready to put it all together to arrive at a sell price
for labor (whew!)
(15) Divide (8) by (14) _____________________________=Sell Price
of Labor
(using our example) $43.20/.65 = $66.46 per hour.
You may be surprised at how high this ends up. This is the rate you need to charge to make a profit and to stay in business.