Shop Labor Rate Calculator

Whether you run a shop or work as an independent mechanic, your labor rate has to pay your techs, your overhead and you, and leave a profit, using only the hours you actually bill. Enter your shop's numbers and see the minimum rate you need, and how far your current rate is from it.

Technicians
$ /hr
hrs
hrs

The hours you actually charge customers for. Waiting for parts, comebacks, cleanup and shop work are paid but not billed.

% of pay
Monthly costs
$
$
$
$
$
$
$

Service advisor, office, porter. Anyone who is paid but doesn't bill labor.

$

What you pay yourself each month. If you are also one of the techs above, only add what you take on top of that.

Profit
% of labor sales
$

Parts profit can carry part of your costs and lower the labor rate you need. Leave at 0 to make labor pay its own way.

weeks

52 minus holidays and closed weeks.

$ /hr

Add it to see how far you are from the rate you need.

Your labor rate should be at least

—/hr

Break-even: —/hr with zero profit

Where each billed hour goes

    Billed hours / month—
    Total costs / month—
    Tech productivity—
    Labor gross profit—

    Labor gross profit is the share of the rate left after tech pay and payroll costs. Many shops aim for around 70% or more.

    Quick answer: labor rate = (monthly tech pay + overhead + staff and owner pay − parts profit) ÷ (1 − target profit %) ÷ billed hours per month. The number that moves it most is billed hours, not costs.

    How to calculate the labor rate for an auto repair shop

    Labor rate = (Total monthly costs − Parts gross profit) ÷ (1 − Profit %) ÷ Billed hours per month

    Here is the calculation with the example numbers the calculator starts with: a shop with three techs.

    1. Tech pay. 3 techs × $28/hr × 40 hours × 52 weeks ÷ 12, plus 20% for payroll taxes and benefits = $17,472 a month.
    2. Everything else. $8,700 of rent and overhead, $4,200 for a service advisor and $6,000 of owner's pay. Total monthly costs: $36,372.
    3. Billed hours. Each tech bills 30 of their 40 paid hours, 50 weeks a year: 3 × 30 × 50 ÷ 12 = 375 hours a month.
    4. Break-even rate. $36,372 ÷ 375 = $96.99 an hour. Charge less and the shop loses money on every hour.
    5. Target rate. For a 15% profit: $36,372 ÷ 0.85 ÷ 375 = $114.11 an hour.

    Not sure what your shop really spends each month? The rate is only as good as the costs you put in. Log every business expense by category for a couple of months with our Google Sheets expense tracker, then come back with real numbers instead of guesses.

    Why billed hours matter more than anything else

    You pay your techs for every hour they are in the shop, but you can only charge customers for the hours spent on their cars. Time waiting for parts, redoing a comeback, cleaning up or working on shop jobs is paid and not billed. Same shop, same costs, different billed hours:

    Billed hours per tech, per weekProductivityRate needed (15% profit)
    25 of 4063%$136.93/hr
    30 of 4075%$114.11/hr
    35 of 4088%$97.81/hr

    Five more billed hours per tech each week lowers the rate the shop needs by around $16 to $23 an hour. That is why tracking billed hours per tech, every week, is one of the most useful habits a shop owner can have.

    Effective labor rate calculator

    Your posted rate is the number on the sign. Your effective labor rate is what you actually collect for each hour billed: total labor sales divided by hours sold. Discounts, free diagnostics, warranty work paid at a lower rate and "just charge an hour" all pull it below the posted rate. Enter last month's numbers:

    $
    hrs
    $/hr

    If the effective rate is well below the posted rate, look at discounts and free work before raising prices. And when you compare with the rate the calculator above says you need, use the effective rate, because that is the money that actually comes in.

    Should parts profit cover part of your costs?

    Counting parts profit lowers the labor rate you need. With $3,000 a month of parts gross profit, the example shop's target drops from $114.11 to $104.70 an hour. The catch is that the rate only works while parts sales hold up. Jobs that are mostly labor, diagnostics and customers who bring their own parts then earn less than they cost. Many owners set the labor rate with parts profit at zero and treat parts margin as extra.

    How to raise your labor rate without losing customers

    • Know the local market. Call or check three to five comparable shops nearby. Your rate doesn't have to be the lowest, just justified.
    • Raise in small steps, regularly. A few dollars once a year is easier to accept than a big jump after five years of no change.
    • Show the work. Inspections with photos and clear estimates make the price easier to accept, because the customer can see what they are paying for.
    • Fix billed hours first. If the rate you need is far above the local market, look at how many paid hours never reach an invoice before you raise prices.

    Our auto repair shop software, OwnDesk Auto PRO, puts labor and parts on every estimate and repair order, with digital vehicle inspections and invoices, so each hour you work ends up on a bill.

    Running a tire shop? The same math applies to mount-and-balance and repair work, and OwnDesk Tire covers the work orders, tread depth by wheel, DOT codes and invoices.

    HVAC labor rate calculator (and other trades)

    The same calculator works for HVAC, plumbing, electrical and any trade that sells labor by the hour. Three things change:

    • Trucks go in overhead. Add vehicle payments, fuel, insurance and upkeep to "Equipment, loans and leases" or "Other".
    • Drive time is paid, not billed. A service tech who spends an hour or two a day on the road bills fewer hours, so enter an honest number in "Billed hours per tech".
    • Flat-rate pricing still needs an hourly rate. If you quote from a price book, this rate is what each task's price should be built on.

    OwnDesk has software built for each of these trades, with a price book, estimates, job costing and invoicing: HVAC business software, plumbing estimating software, electrical contractor software and handyman business software. For car detailers there is auto detailing software.

    Add this calculator to your website

    Write for shop owners, run a trade association or coach shops? You can put this calculator on your own page for free. Paste this code where you want it to appear:

    Frequently asked questions

    How do I calculate the labor rate for my shop?
    Add up everything the shop costs per month: tech pay with payroll taxes, rent and overhead, non-billing staff and your own pay. Subtract any gross profit you make on parts if you want parts to carry part of the load. Divide by (1 minus your target profit margin), then divide by the hours your techs actually bill per month. The result is the lowest hourly rate that covers everything and leaves your profit.
    What is a good labor rate for a mechanic or auto repair shop?
    It varies a lot by area, specialty and the kind of work you do, so there is no single right number. Two checks matter: your rate must be above the rate this calculator gives you, and it should be in line with what three to five comparable shops near you charge. If the rate you need is well above the local market, the fix is usually more billed hours or lower costs, not a lower price.
    What is the effective labor rate?
    The average you actually collect for each hour billed: total labor sales divided by hours sold. It is usually lower than the posted rate because of discounts, free diagnostics, warranty work paid at a lower rate and jobs where the full time wasn't charged. Compare the effective rate, not the posted one, with the rate your costs require.
    What is labor gross profit?
    The part of your labor sales left after paying the techs who did the work, including their payroll taxes and benefits. If you bill $120 an hour and the tech costs you $40 an hour for each hour billed, labor gross profit is $80, or 67%. Many shops aim for around 70% or more.
    What is the difference between tech productivity and efficiency?
    Productivity compares the hours a tech spends working on customer jobs with the hours they are paid for. Efficiency compares the hours billed to the customer with the hours the tech actually spent on those jobs. This calculator uses billed hours versus paid hours, which combines both.
    Why does the number of billed hours matter so much?
    Your costs are paid over every paid hour, but they can only be recovered through the hours you bill. A tech paid for 40 hours who bills 25 needs a much higher rate than one who bills 35. Raising billed hours is often worth more than raising the rate.
    Should I count parts profit when setting my labor rate?
    Some shops do, which lets them charge a lower labor rate. The risk is that the rate only works while parts sales hold up, and customers who bring their own parts, or jobs that are mostly labor, then lose money. Running the calculator with parts profit at 0 shows the rate at which labor pays its own way.
    How often should I raise my labor rate?
    Review it at least once a year, and any time a big cost changes: a rent increase, a new hire, a pay raise or new equipment. Small, regular increases are easier for customers to accept than a large jump after several years.
    Does this work for HVAC, plumbing, tire shops and detailers?
    Yes. Any shop or trade that sells labor by the hour has the same math: people and overhead costs, divided by the hours you can bill. Use your own trade's numbers for pay, billed hours and overhead.

    Bill every hour you work

    OwnDesk Auto PRO handles repair orders, estimates, inspections and invoices for an independent shop. It runs on your own computer, works offline and is a one-time payment.

    See OwnDesk Auto PRO
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