The $25/Hour Lie: Why Your Service Business is Bleeding Cash (and How to Fix It)

You hired a new tech for $25 an hour. You bill him out at $45 an hour. On paper, you’re making a $20 profit for every hour he works. So why is the company bank account essentially flatlining at the end of the month?

It’s the most common math error in the home service industry, and it kills more small businesses than bad reviews ever could.

The problem isn’t your work ethic. The problem is that $25 an hour isn’t actually $25 an hour. Once you factor in the "silent killers"—payroll taxes, insurance, benefits, and unbillable downtime—that employee might be costing you $38, $42, or even $50 an hour. If you’re still billing them out at $45, you aren't running a business; you’re running a charity.

What is "Labor Burden" (and Why Should You Care)?

In the corporate world, they call it "Labor Burden." In the field service world—whether you're in landscaping, HVAC, or plumbing—we just call it "Overhead."

Labor burden is the sum of all the indirect costs associated with having an employee. These are costs you pay just for the privilege of having them on your payroll, before they even pick up a wrench or a paintbrush.

According to the Small Business Administration (SBA), these costs typically add 1.25 to 1.4 times the base salary to your expenses. That means your $25/hour technician actually costs you between $31.25 and $35.00 before you even add profit margin.

The "Unbillable" Trap

Here is where many estimating apps fall short. They assume an 8-hour day means 8 hours of billable work.

Your crew spends time driving to job sites, loading trucks, sitting in traffic, cleaning up, and attending safety meetings. If you pay a tech for 40 hours a week, but they only do billable work for 30 hours, your True Hourly Cost skyrockets.

If you don't account for this "efficiency rate" in your job estimates, you are paying your customers to let you work on their houses.

5 Steps to Find Your True Number

We designed the Labor Burden Calculator to be simple enough for a busy contractor but powerful enough for an accountant. Here is how to use it to save your margins:

Now What? How to Use This Data in WorkQuote

Once you know your True Hourly Cost (let's say it's $38.50), you can finally build estimates that guarantee profit.

When you open the WorkQuote app to build a new proposal, you shouldn't just guess a price.

1. Take your True Hourly Cost ($38.50).
2. Add your desired Profit Margin (e.g., 20%).
3. Add your Overhead Markup (office rent, software, marketing).

Now, when you use our invoicing features, you can be confident that every invoice sent isn't just covering wages—it's building the future of your company.