Free Shop Tool
Enter your effective labor rate, your highest paid tech’s hourly pay, and your tech productivity to see the labor rate your shop needs to charge and the technician wages you can afford.
Built with the Institute for Automotive Business Excellence, the math runs on one rule: your technicians should cost no more than 40% of your labor revenue.
Tech pay × 1.3 load = Loaded cost → × 2.5 = Effective labor rate needed
Start with technician wages, then add a 30% load for FICA, FUTA, workers’ compensation, and paid time off, because that is what an hour of your tech really costs. Multiply the loaded cost by 2.5 and you have the effective labor rate your shop needs to charge. Why 2.5? Because the other 60% of every labor hour has to cover shop overhead and profit margin, not just payroll.
It works in reverse too. Take the effective labor rate you charge today and multiply by 40%: that is the loaded technician cost you can afford. Divide it by 1.3 and you have the unloaded wage. If your best tech wants more than that number, the rate is the problem, not the tech.
The productivity result goes one step further: loaded cost divided by (100% minus your tech productivity rate). It shows what the hour has to earn once non-productive time is priced in.
Your posted labor rate is the number on the wall. Your effective labor rate is the number in your bank account: total labor revenue divided by total hours clocked, with comebacks, warranty work, and idle time between jobs included.
Your posted labor rate is the number on the wall. Your effective labor rate is the number in your bank account: total labor revenue divided by total hours clocked, with comebacks, warranty work, and idle time between jobs included.
See our breakdown of average auto repair labor rates by state.
Good to know
Divide last month’s labor dollars brought in by last month’s labor hours sold. The result blends every rate you actually charge, including discounted, warranty, and menu-priced work, into the one number that tells you what an hour of labor really earns. That is the figure this calculator asks for first.
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