Labor Cost Calculator

This HVAC labor cost calculator helps you determine exactly what to charge for labor on any job — factoring in hourly wages, overhead, billable efficiency, and your target profit margin. Stop guessing at labor rates and start pricing every job with numbers you can defend. Download a copy of our free calculator and use it on every job.

What is an HVAC labor cost calculator?

An HVAC labor cost calculator is a tool used to estimate the cost of labor for HVAC jobs. It considers factors like hourly wage, overhead costs, and profit margin. It even includes a markup factor to determine a comprehensive labor cost.

Why should I use an HVAC labor calculator?

Using a calculator helps ensure accurate and fair pricing for both the technician and the customer. It provides a transparent estimate, helps in budgeting, and can prevent disputes over labor costs.

How do you use this calculator?

To use this calculator and determine HVAC labor costs, follow the seven steps outlined below.

A simple formula for calculating HVAC labor rates might look like this:

Labor Cost = (Hourly Wage + Overhead Costs + Profit Margin) × Markup Factor

Hourly Wage: This is the hourly rate you pay each tech for HVAC jobs. It will vary depending on the tech’s experience and skill level.

Overhead Costs: These are the indirect costs associated with running an HVAC business. Think insurance, tools, equipment, office space, administrative costs, break room supplies, vehicle maintenance, and more.

Divide your annual overhead costs by the total number of billable hours worked by your technicians in a year to get the overhead cost per hour.

Profit Margin: This is the percentage of profit you want to make on top of covering your average costs.

Markup Factor: This is a multiplier that helps cover the overhead costs, profit margin, and other miscellaneous expenses.

7 Steps to Pricing HVAC Labor

HVAC labor costs can depend on several factors. As you’re calculating, you’ll need to take into account the skill levels of your team (master technician, journeyman, or apprentice), geographical location, type of HVAC work, overhead costs, and market demand. It may seem complicated, but it’s not so bad! Let’s walk through it step by step.

Step 1: Calculate overhead costs.

Average annual overhead costs include all fixed and variable assets required to operate the business. This includes rent, insurance, utilities, break room supplies, and more. These costs do not include payroll.

Step 2: Calculate the number of techs on payroll.

Next, figure out how many revenue-generating techs you plan to employ over the next 12 months. Include any new hires or team reductions. For instance, if you plan to open a new department, like heat pump or furnace installs, be sure to include those new employees in your calculations.

Step 3: Determine how many working hours each tech works annually.

To calculate your team’s annual working hours, you need to first know the total available working hours and your team’s total non-billable hours (think vacation days and holidays) in a year.

For this example, let’s say each of your techs works 40 hours a week and annually receives 10 days off for vacation and 7 days off for federal holidays.

Calculate the number of available working hours:

You can determine the total available working hours by multiplying each tech’s weekly hours (40) by the number of weeks in a year (52).

40 hours × 52 weeks = 2,080 total available working hours

Calculate the number of non-billable hours:

Next, determine the total non-billable hours by multiplying the number of vacation days and holidays each tech receives (17) by the number of hours in a typical workday (8).

(10 vacation days + 7 holidays) × 8 hours = 136 non-billable hours

Calculate the number of working hours:

Once you have those two figures, subtract the non-billable hours (136) from the total available working hours (2,080) to determine the number of annual working hours per tech.

2,080 hours – 136 hours = 1,944 hours per tech

Enter the total annual working hours per tech (1,944) into the labor cost calculator.

Step 4: Calculate projected billable hours per tech.

To determine projected billable hours per tech, calculate the average percentage of their workday that results in billable hours. Generally, 30% is good efficiency, while 50% is highly efficient. For example, at 30%, a tech bills 2.4 hours out of an 8-hour day.

Convert the efficiency rate to a decimal (for example, 30% = 0.30) and multiply by the total annual working hours per tech (from Step 3). With 1,944 available hours and a 30% rate, you get 583.2 billable hours per year. Enter this total into the calculator to estimate direct labor costs.

Formula:

Available Working Hours × Average Billable Efficiency Rate = Projected Billable Hours per Tech Each Year

Step 5: Calculate the hourly rate to cover overhead only.

To determine the hourly rate that would cover overhead costs only, you need to know the team’s total billable hours for the year and your annual overhead costs (from Step 1).

Total billable hours for team in a year:

To calculate the total billable hours for the team, take the projected number of billable hours each technician works (from Step 4) and multiply it by the number of technicians you plan to employ over the next year. For this example, let’s say you plan to have 5 techs.

583.2 annual billable hours × 5 technicians = 2,916 billable hours for technician team

Hourly rate to cover overhead only:

To get the hourly rate that would cover overhead only, divide your total overhead costs (from Step 1) by the team’s total billable hours in a year. For this example, let’s say overhead costs are $100,000.

$100,000 overhead costs / 2,916 total billable hours = $34.29 per hour to cover overhead costs only

Formula:

Overhead Costs / Annual Total Billable Hours = Hourly Rate to Cover Overhead Costs Only

Step 6: Calculate your break-even labor rate per billable hour.

To determine the break-even labor rate per billable hour that covers both overhead and labor costs, you need to first calculate the technician payroll cost.

Calculate technician payroll cost:

Multiply the average hourly payroll rate per tech by the total billable hours per year for all techs (from Step 5). For this example, let’s say the average hourly payroll rate is $28.

$28 per hour × 2,916 total billable hours = $81,648

Calculate total expenses:

Once you have that figure, combine the payroll cost with your overhead costs (from Step 1) to calculate your total expenses. For this example, let’s say overhead costs are $100,000.

$81,648 for technician payroll + $100,000 for overhead = $181,648 total expenses

Calculate break-even labor rate:

To calculate the break-even labor rate, divide your total expenses (payroll cost + overhead costs) by the total number of billable hours for your tech team (from Step 5).

$181,648 / 2,916 hours = $62.29 per billable hour

Step 7: Calculate your profitable labor rate.

Last, but not least, determine the billable rate needed to reach your desired net profit. For this example, let’s say you’d like to achieve 30% net profit.

Calculate direct labor rate for profitability:

First, convert your desired net profit percentage into a decimal by dividing it by 100.
30% / 100 = 0.30

Next, subtact that amount from 1.

1 – 0.30 = 0.70

Lastly, divide your break-even rate per billable hour (from Step 6) by that amount.
$62.29 / 0.70 = $88.99 billable hour rate to reach 30% net profit

Formula:

(Break-Even Rate per Billable Hour) / (1 – Desired Net Profit Percentage Expressed in Decimals) = Profitable Billable Labor Rate