Why your hourly rate doesn't cover your real cost

If you price by the hour, one number decides whether you make money: what that hour actually costs you, fully loaded, not the wage on the pay stub.

Shops that price on the base wage alone are not bad at arithmetic. Nobody ever wrote down the full list of what a paid hour costs beyond the wage itself: payroll taxes, workers’ comp, benefits, the truck, the tools, training, the hours that never reach an invoice, and the overhead that runs whether a wrench turns or not S-LABOR-01.

This is not a fringe problem

Average net profit across the trade sits at 6%, and it splits hard by shop size: 5% at four trucks or fewer, 8% at ten or more S-ACCA-03. The gap is not talent. Bigger shops are simply more likely to track cost per job instead of pricing off the wage.

The seven components

Each one is something you can check against your own numbers.

1. Base wage. The number on the pay stub. The published national average for technicians is about $33/hour, roughly $28 to $38 depending on the region S-ACCA-03.
2. Employer payroll taxes. Employer FICA is 7.65% of wage: 6.2% Social Security plus 1.45% Medicare S-FICA-01. Add your state unemployment rate on top; around 9% total is a starting point, and your own filings are the real answer.
3. Workers’ compensation. This is the line where a national average is worth least. Your rate is the one on your policy, in dollars per $100 of payroll; one state prices HVAC work at $1.98 per hour worked, a different unit entirely, not a percentage S-WC-02. Read your own policy rather than a benchmark.
4. Benefits. What you actually pay in health cover and retirement. The federal survey puts insurance and retirement at 19.2% of wages for construction and extraction occupations S-ECEC-01, which is the figure the calculator suggests until you replace it with yours.
5. The truck. Financing or depreciation, fuel, maintenance, insurance: an annual dollar figure per technician. No published average is defensible here.
6. Tools and training. What it costs to keep a technician equipped and certified for a year. Same caveat.
7. The hours nobody bills. Drive time, waiting on parts, callbacks, meetings. Published estimates put this at 18–32% of paid hours S-LABOR-01. If a quarter of your paid hours never reach an invoice, every billable hour carries the cost of the one beside it that didn’t.

Add the seven, divide by the hours you can actually bill in a year (not the hours you pay for), and you have your true hourly cost. Not your price.

Cost is not price, and the difference is an arithmetic trap

Your price is that cost divided by (1 − your target margin). Not cost multiplied by (1 + margin). Margin is a share of what you charge; markup is an addition to what you spend. Using one while meaning the other underprices every job priced that way, quietly and consistently. That mistake has its own page: markup vs margin.

What the gap looks like

Published guidance puts the billing multiple most shops should be applying at 2.5× to 3.5× the wage, against the 1.5–2× a back-of-envelope guess tends to produce S-LABOR-01. On a shop billing a few thousand hours a year, a gap of a few dollars an hour is real money on every job, every week, for as long as nobody measures it.

That is the mechanism behind the fifth of annual profit above. It does not announce itself, because no individual job looks wrong.

A rate you can explain is a rate you can defend

Pricing correctly is not only about the number. Technicians who handle price complaints every week report the same thing independently: get the customer to approve the stated price before the work starts and complaints about the bill mostly disappear. A rate you can walk through line by line is one you can put in front of a customer. A rate you can’t explain is one you end up defending after the fact, which is the harder conversation.