How to Calculate Your Labor Rate
The principle takes three steps: know what your shop costs every month, know how many hours you can actually sell, then set a price that covers both with a margin:
Billable hours = technicians × weekly hours × 4.33 × billing efficiency
Cost per hour = (overhead + fully loaded payroll) ÷ billable hours
Labor rate = cost per hour × (1 + target margin)
Example: $6,000 overhead, $16,000 loaded payroll, 2 techs at 40 h with 75% billing efficiency → 260 billable hours a month, cost per hour $84.68. With a 20% margin, labor rate to charge: $101.62.
Below your cost per hour, every hour you sell loses money — even with a full schedule. Check that before comparing yourself to the shop across town. Note: whether sales tax applies to labor depends on your state — the rates above are pre-tax.
Mistakes That Skew the Numbers
- Using bare wages: payroll taxes, workers' comp and benefits add 20-40% on top — that's what actually leaves your bank account;
- Leaving out your own pay: if the math only works because you don't pay yourself, the rate is wrong;
- Dividing by 100% of clocked hours: nobody bills 40 hours out of 40 — plan on 70-80%;
- Freezing the rate for years: rent, parts, utilities and wages all move; recalculate at least once a year;
- Copying the shop next door: their overhead is not yours.
This information is provided as guidance only and is not a substitute for advice from your accountant.
Frequently Asked Questions
What is the average auto repair labor rate in the US?
As a rough guide, independent shops commonly charge between $75 and $150 per hour; dealerships and specialty shops (diagnostics, European makes, EVs) are often higher. Regional differences are large — your rate must cover your costs first, the averages come second.
Should I have one rate or several?
Many shops run two or three: general repair, advanced diagnostics (electronics, transmissions, hybrid/EV) and bodywork. The cost-per-hour math stays the same — specialty rates simply carry a higher margin, justified by tooling and training.
Is my data sent anywhere?
No. Everything is computed in your browser: nothing is transmitted or stored on a server.
How do I calculate my shop's labor rate?
Add up everything your shop costs each month (rent, utilities, insurance, tools, software, plus fully loaded payroll for your technicians). Divide by the hours you can actually bill in a month (hours of presence × billing efficiency, rarely more than 75-80%). That's your true cost per billable hour — your labor rate must exceed it by your target margin.
What does 'fully loaded payroll' mean?
Wages are only part of what a technician costs you. Fully loaded payroll adds employer payroll taxes, workers' compensation, health benefits and paid time off — typically 1.2 to 1.4 times gross wages. Using bare wages in the calculation understates your cost per hour.
Why count only 70-80% of hours as billable?
Estimates, customer service, parts ordering, shop cleanup, training and test drives are never billed. In most shops only 70 to 80% of clocked hours turn into billed hours. Dividing overhead by 100% of clocked hours understates your true cost and can make you sell hours at a loss without noticing.
Your rates, inside real invoicing software
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