Most owners I've met price their work off the wage. They pay a tech $25 an hour, charge the customer some multiple of that, and assume the gap is profit. Then they wonder why they're busy all year and broke at the end of it.
The gap isn't profit. Most of it is cost you forgot to count. That's what burden rate fixes. Get this one number right and everything downstream — your quota, your labor pricing, your commission split — finally sits on solid ground. Get it wrong and you're guessing with every quote.
What burden rate actually is
Burden rate is the fully-loaded cost of putting one tech in front of one customer for one hour. The wage is line one. Everything else stacks on top:
- Employer payroll taxes — your half of FICA, plus federal and state unemployment.
- Workers' comp and liability insurance — in the trades this is real money, not a rounding error.
- Benefits — health, PTO, anything you offer.
- The truck — payment, fuel, maintenance, insurance, the inventory riding in the back.
- Tools, phone, software, uniforms — every recurring cost it takes to keep that tech working.
None of that shows up on the paycheck, but all of it leaves your bank account every time the tech clocks in.
The worked example
Take a $25/hr tech. Here's what an hour really costs once you load it up. Your numbers will differ — this is the shape of the math, not a quote.
So before the tech has billed a single minute, that "$25 guy" already costs you nearly $40 an hour. But we're not done — and this is the part that quietly sinks most shops.
The hour you pay for isn't the hour you bill
You pay for 40 hours. You don't bill 40 hours. Drive time, restocking, shop time, training, the job that got cut short — all paid, none invoiced. If a tech bills 30 of their 40 paid hours, your billable ratio is 75%.
That paid-hour cost has to be recovered across only the hours you can actually charge for. So divide:
The "$25 tech" costs you $52.67 for every hour you can actually put on an invoice — more than double the wage. If you've been pricing off $25, or even off $40, you've been selling labor below cost and calling the shortfall a slow month.
Burden rate is your floor, not your price
Important: burden rate is cost, not price. It's the break-even line. Your price still has to cover:
- Burden rate — the real cost of the labor hour (above).
- Overhead — rent, office staff, advertising, your own pay.
- Profit — the margin the business needs to survive a slow season and actually grow.
Price below the floor and volume just makes you lose money faster. Know the floor and every other decision — what to charge, what quota to set, what you can afford to pay — gets honest.
What to do with the number
Once your burden rate is real, it drives the rest of the system. It sets the quota each tech has to clear to be worth their seat. It sets the flat-rate labor price you put on a job. And it tells you exactly how much room exists for a commission split that pays your best people more without bleeding the company. That's the whole point: one true number, and the guesswork is gone.
Common questions
Is burden rate the same as the price I charge?
No. Burden rate is your cost — the break-even floor. Price has to cover burden rate plus overhead plus profit. Pricing off burden rate alone means you never make money.
Why is it so much higher than the wage?
Because the wage is one line out of many. Taxes, comp, insurance, the truck, and software all cost money per paid hour — and then non-billable time means you recover all of it across fewer billed hours.
How often should I recalculate it?
At least once a year, and any time insurance, fuel, wages, or your billable ratio moves. Burden rate isn't set-and-forget — it drifts with your real costs.
Does this work for hourly, T&M, or flat-rate shops?
Yes. Burden rate is your cost no matter how you bill the customer. It's the foundation underneath every pricing method, not a replacement for any of them.
Run your real number
Plug in your own wages, insurance, and billable ratio and get your burden rate in minutes — then build the quota, labor pricing, and commission split on top of it.
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