Use our Plumbing Labor Rate Calculator to compute your ideal billable rate.

Pricing plumbing services correctly is critical to growing your bottom line. To set plumbing prices with profitability in mind, plumbing contractors must first calculate direct labor costs.

While the formula for calculating plumbing labor rates and labor costs can seem a bit complicated at first, it really boils down to how efficiently your licensed plumbers work and their amount of billable work.

Use this ServiceTitan Plumbing Labor Calculator to tabulate a billable hourly labor rate that covers your true cost of doing business (just enough to break even), and then calculate the ideal billable labor rate your company should charge to yield higher net profit goals.

How to Use This Calculator/Steps to Pricing Plumbing Labor

Just like HVAC contractors and electricians, professional plumbers need a cost estimator tool to calculate their direct labor costs, total overhead, and the total cost of doing business before setting prices for their plumbing services.

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

Labor Rate = (Hourly Wage + Overhead Costs + Profit Margin) * Markup Factor

• Hourly Wage: This is the hourly rate you pay each plumber for plumbing jobs, such as clearing clogged drains, fixing a burst pipe, or replacing a water heater. This can vary depending on the plumber's experience and skill level.

• Overhead Costs: These are the indirect costs associated with running a plumbing business, such as insurance, tools, equipment, office space, administrative costs, vehicle maintenance, and more. Divide your annual overhead costs by the total number of billable hours worked by your plumbers 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.

Calculating plumbing costs and plumbing labor rates can depend on several factors, including skill levels (master plumber, journeyman, or apprentice), geographical location, type of plumbing work, overhead costs, and market demand. Let’s walk through it step-by-step.

• Calculate overhead costs

Average annual overhead costs take into account all fixed and variable assets required to operate the business, including rent, insurance, office staff payroll, utilities, and more. These costs do not include technician payroll.

•  Calculate the number of technicians on payroll

Next, figure out how many revenue-generating techs you plan to employ over the next 12 months. Include new hires or job reductions. For instance, if you plan to open a new department, such as septic systems or sewer lines, be sure to include those new employees in your calculations.

• Determine how many billable hours each technician works each year

Totaling billable hours for your company takes into account how many paid holidays and vacation or sick days each tech gets in a calendar year. 

Once you know your nonbillable hours, subtract that time from the 40 hours the technician clocks each week, multiply by 52 weeks in a year, which equals 2,080 total work hours. The nonbillable hours might include 10 paid vacation days along with seven days off for federal holidays.   

• Cost of an employee: Paid time off

(Holidays + Paid Time Off) x 8 hours per day = Hours per year spent not working on business days

17 days x 8 hours = 136 hours

Then, subtract that total from the 2,080 hours available for work each year, and enter the total available working hours per year into the employment costs calculator.

• Avg. working hours annually

2,080 - 136 = 1,944 hours per technician

• Calculate projected billable hours per tech

To determine projected billable hours per tech, you must calculate what percentage of a technician’s workday results in billable hours on average.

Remember, plumbing techs spend nonbillable time on general and administrative tasks, such as:

• Traveling and fuel stops

• Delivering free plumbing estimates

• Warranty services and callbacks

• Stocking work vehicles and tool maintenance

• Logging plumbing project details such as mileage and parts used

• Generating paperwork, such as invoices and estimates

Projecting how many billable hours each technician works on average requires knowing your average billable hour labor percentage, also known as utilization rate. Out of an eight-hour workday, what percentage of your technicians’ time is spent on billable tasks, where they’re actually on a job site performing water heater repairs, fixing a leaking pipe, installing plumbing fixtures, replacing a sump pump battery, or maintaining plumbing systems? 

Utilization rates vary by industry, but it tends to be lower for the skilled trades than other professional services because you must be onsite to actually perform billable work.

For most plumbers, 30% is considered a good efficiency rate, while 50% would deliver extremely efficient employee costing. That means out of eight hours, if a technician does approximately 2.4 hours of billable work per day, the billable hour percentage averages 30%. At a 50% billable hour efficiency rate, a technician does four hours of billable work, spending half a workday inside a customer’s home or on a commercial job site performing services. 

Once you estimate that average billable efficiency rate, convert the percentage into a decimal (30% = 0.30) and multiply it by the total available working hours per year. 

So, using the total of 1,944 available work hours at a 30% utilization rate, you're left with 583.2 billable hours per technician annually. You’ll enter that total for projected annual billable hours into the labor calculator to help calculate your direct labor cost. 

• Direct labor cost formula:

1,944 available work hours X 0.30 average billable efficiency rate = 583.2 projected billable hours per technician each year

• Calculate total billable hours for the company to cover overhead only

Take the approximate number of billable hours each technician works and multiply it by the number of technicians you plan to employ over the next year to calculate the total billable hours for the company overall. 

• Labor costing formula:

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

Next, divide your total overhead cost by the team’s total billable hours in a year to get the hourly rate that would cover overhead only. 

• Overhead cost formula:

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

6. Calculate your break-even labor rate per sold hour

To determine how much your plumbers charge per hour to cover both overhead and the cost of labor for all technicians working during billable hours, you need to calculate your bottom line to break even for billable time. 

How much does an employee cost your business overall? Begin by calculating the average hourly rate you pay your technicians, with costs including:

• Taxes, including FICA and income

• Health care and additional cost benefits

• Any other direct labor costs related to tech employment, such as commission or spiff payments

If technicians cost you an average hourly rate of $28, and you employ five techs who work a total of 2,916 billable hours per year, you multiply your average hourly rate per tech ($28) by the total billable hours (2,916) to get your technician billable payroll cost. Add that number to your overhead cost for the grand total of expenses accrued during billable hours.

• Direct labor formula:

(Annual billable hours per tech) X (no. of techs) = (Total billable hours for company) X (avg. hourly rate per tech)

• Employees cost calculator:

583.2 billable hours X 5 techs = 2,916 total billable hours

2,916 total billable hours X $28 per hour = $81,648 technicians billable payroll cost + overhead cost.

• Cost of employee payroll plus overhead:

$81,648 for technicians + $100,000 for overhead = $181,648 total expenses.

Divide that expense total by the total number of billable hours for your tech team to get your break-even labor rate. 

• Results for break-even rate per billable hour

$181,648 ÷ 2,916 hours = $62.29 per sold hour

7. Determine your desired net profit

How much should your plumbing labor rate be for your company to actually make a profit? Figuring out that direct labor rate begins with determining your desired net profit. 

Net profit equals your profit divided by total sales. For service companies, 25% is considered a good starting point. You can adjust to 30% or higher as you continue to grow the business.

To find your profitable labor rate, divide the break-even billable labor rate by the percentage of cost in your projected budget (the counterpart to your desired net profit percentage). If your net profit goal is 30%, you divide by 70% or 0.70 to get your billable labor rate to reach desired profitability. 

Business math tip: Don’t multiply the break-even hourly rate by 30%, as you’ll get a lower labor rate total. You divide by 70% to take into account a markup to calculate the percentage of cost that is profit, versus the percentage of the price that is profit—also known as the profit margin.

How to calculate direct labor rate for profitability:

(Break-even rate per billable hour) ÷ (1 - desired net profit expressed in decimals) = Profitable billable labor rate

$62.29 per hour ÷ (1 - 0.30)

$62.29 ÷ 0.70 = $88.99 billable hour rate to reach 30 percent net profit

By following these steps, you can calculate plumbing labor rates that cover your costs and ensure a desired level of profitability.

How ServiceTitan Can Improve Pricing and Efficiency

Understanding the cost of doing business and the ideal labor rate for your plumbing company can help you identify ways to improve efficiency, ultimately increasing your billable productivity and profitability. If you’re looking to implement flat-rate pricing and move from hourly pay to performance-based pay, knowing what each hour of labor truly costs the company is a critical factor in creating your cost guide.

Plug your optimal billable labor rate into your ServiceTitan Pricebook to easily calculate appropriate flat-rate pricing for all plumbing jobs, whether it’s for emergency service, installation costs, or simply cleaning out a septic tank. As the numbers clearly show, efficiency directly improves your profitability. Plumbing software with field service management offers a multitude of ways to drive higher profitability and improve efficiency across the company. 

Here’s a list of key functions ServiceTitan software provides plumbing contractors, so they can boost their bottom line:

• Real-time reporting: Track each employee’s timesheet by task and sort jobs by transaction, so you can easily calculate average billable service rates and see where you may improve utilization rates. Run detailed analytics and payroll reports to figure out the average hourly cost of an employee and total overhead costs. 

• Pricebook Pro: Use your profitable billable labor rate in the ServiceTitan Price Setup Wizard to calculate pricing for your specific pricebook. An integrated, flat-rate pricebook saves the entire team valuable time and protects your profit margin, because you know the calculated billable labor rate covers all material costs and related expenses and comprises your ideal net profit.  

• Minimize nonbillable time: While every company must build some nonbillable time into the schedule, ServiceTitan field management software greatly reduces the amount of time technicians waste filling out paper forms or manually entering job details when they could be providing additional billable labor.

>>Ready to see how ServiceTitan can help boost your plumbing company’s profits with truly competitive plumbing labor rates? Request a demo.

Frequently Asked Questions

• What factors should I consider when calculating labor rates? Labor rates should take into account overhead costs, technician efficiency, desired profit margins, market competition, and local economic conditions.

• How do I determine overhead costs? Overhead costs include expenses such as rent, insurance, utilities, administrative salaries, and more. Add up these costs and divide by the total number of billable hours to get an overhead cost per hour.

• What's a reasonable technician efficiency rate? Technician efficiency rates can vary based on industry norms and the complexity of the work. A common efficiency rate might range from 30% to 50%.

• How do I factor in employee costs, such as benefits and taxes? Employee costs include benefits, taxes, insurance, and any other costs associated with employing technicians.

Should I adjust my labor rates over time? Yes, labor rates may need adjustments as overhead costs change, efficiency improves, and market conditions fluctuate.