Calculating a technician’s hourly rate: from wage cost to the hour on the invoice

Calculating an hourly rate: where it usually goes wrong

Anyone who wants to calculate their hourly rate often starts from the technician’s wage and adds “something”. That goes wrong in a few places:

• The gross wage becomes the cost price. Employer contributions, holiday pay, the end-of-year bonus and fringe benefits stay out of the picture.
• Every paid hour counts as a billable hour. Leave, training, the warehouse and the drive to the first customer are paid, but not invoiced.
• The van and the office are missing. Lease, fuel, tools, the planner and the accountant must also be paid for by the invoiced hours.
• The rate is never reviewed. Wages follow indexation; the rate stays where it is.

You only see it at the end of the year, when the technicians worked full days and there is still little left over.

Hourly wage, cost per hour and hourly rate: what is the difference?

So calculating an hourly rate means working from the bottom up: first what a billable hour costs you, then what you need on top.

Step 1: the full wage cost per year

Ask your social secretariat (payroll provider) for the wage cost of a technician over a full year, not their gross wage. Have it include everything that applies to your company:

• the gross wage and the employer’s social security contributions;
• holiday pay and the end-of-year bonus, as they are set for your sector and the technician’s status;
• fringe benefits and allowances, such as meal vouchers, group insurance or workwear;
• the cost of the social secretariat itself.

In Belgium, minimum wages are not set by law, but in the collective agreements of the joint committees (paritaire comités / commissions paritaires) (FPS Employment, in Dutch). Which joint committee your technicians fall under, and which pay scales and bonuses follow from it, is a question for your social secretariat.

Are you self-employed? Then the income you want to keep replaces the gross wage. You pay your social contributions as a self-employed person every quarter, calculated on your professional income. Ask your accountant or your social insurance fund which amount applies to you.

Step 2: how many hours can you really invoice?

This step has the strongest effect on the rate. Start from the hours you pay a technician in a year, and subtract everything that does not reach a customer:

What remains are the billable hours per year. Divide them by the paid hours and you know your team’s share of billable hours. There is no standard percentage for it, so measure it yourself, over a few months. How to do that is explained in time tracking for technicians.

Step 3: overheads per technician

Overheads are the costs that keep running, whether work is being done or not. Add them up for a year and divide by the number of technicians:

• the van: lease or depreciation, fuel, maintenance, insurance;
• tools and measuring instruments, with their calibration;
• mobile phones, tablets and software;
• the office, the planner, the administration and part of your own time as managing director;
• insurance, the accountant, your website and advertising.

If you are unsure whether a cost belongs, include it. Whatever is not in the hourly rate has to come from the margin on parts or from your profit.

The formula to calculate an hourly rate

• W = the wage cost of one technician per year
• O = the overheads per technician per year
• B = the billable hours of that technician per year
• C = (W + O) ÷ B, the cost per billable hour
• p = the markup you need for profit, risk and investment
• Hourly rate excl. VAT = C × (1 + p)

Note the difference between markup and margin. A markup of 25% on the cost price gives a margin of 20% on the selling price, because 25 is a fifth of 125. Agree internally which of the two you work with.

A worked example with round figures, not a guide price

An installer of heating and heat pumps recalculates the rate of a technician. The amounts are chosen to make the arithmetic easy. They say nothing about what a technician earns or what an hour costs in your sector.

Now suppose that longer drives cost 100 billable hours a year. With B = 900, the cost price becomes €88.89 per hour (80,000 ÷ 900), and with the same markup the rate becomes €111.11. Ten per cent fewer billable hours makes every hour more than eleven per cent more expensive. So measure the travel and the internal work first, before you touch the rate itself. How to group trips by region is explained in route planning with multiple stops.

Travel, minimum time and urgent work

Set these three choices in your general terms and conditions and on your quotes, so that every technician and every customer knows the same rule:

• Travel. A fixed amount per trip or per zone, travel time at your hourly rate, or travel included in the hourly rate. In that last case, the trips do not count as billable hours, and B gets smaller.
• Minimum charged time. A ten-minute intervention still costs you a trip and a slot in the schedule. A minimum per intervention, in minutes, covers that.
• Urgent work, evenings and weekends. A surcharge for the customer is a commercial choice. What you have to pay an employee for those hours depends on the rules of your sector: ask your social secretariat.

State with every rate whether it includes or excludes VAT. Which VAT rate applies to your work, and how to state a price for a private customer, are questions for your accountant.

Time and materials or fixed price?

Time and materials, the hours worked at your hourly rate plus the parts, suits breakdowns whose duration nobody knows in advance. A fixed price suits work you know, such as a maintenance visit, and starts from the same cost price: the estimated hours times your hourly rate, plus travel, parts and a reserve. After a few months, compare the actual hours with your estimate.

When do you recalculate your hourly rate?

At least once a year, and every time a letter in the formula changes noticeably:

• wages rise: the sectoral minimum wages follow the indexations and pay rises in the collective agreements of your joint committee (FPS Employment, in Dutch); your social secretariat knows when the next adjustment is due;
• a new van or new software increases the overheads;
• the billable hours fall, for example because your customers are further apart.

How you pass a new rate on to customers with a running contract depends on those contracts and on your general terms and conditions. Have that checked by your legal adviser.

How it works in Digitalnatie Service Suite

You make the calculation above yourself, with your accountant. In Service Suite you enter the result, and the invoicing then calculates with it.

• Setting the rate: in the organisation settings, the invoicing block takes the hourly rate excluding VAT and the minimum charged time per intervention, in minutes, next to the price of the annual maintenance. A new rate applies from the next calculation of an intervention; amounts already calculated or invoiced do not change.
• Who sees it: in the standard roles, the administrator and the manager change the rates; accounting can view them, the planner cannot.
• From hours to invoice: on a completed intervention, accounting creates a draft invoice with the billable hours, according to the hourly rate and the minimum charged time, and with the parts used. By editing the lines, accounting adjusts the unit price or adds a free line, for example for travel.
• Measuring your billable hours: if your technicians record their day in the app, the staff and hours screen shows, per period, the hours worked, the billable hours, the travel time and the absences. In the reports, the technicians tab gives the hours worked and billable per technician, with a CSV export. That is where you find the B of the formula.

Good to know: the settings hold one hourly rate and one minimum per intervention. If an intervention belongs to a confirmed sales order, the invoice takes over the prices of that sales order; a different rate, for example for urgent work, is adjusted by accounting on the draft invoice. In the financial overview, the margin on parts is shown as not available, because the cost price of the parts used is not tracked per intervention.

How hours and parts reach the invoice without retyping is explained in from work order to invoice. Which figures to track every month is set out in KPIs for a technical service department.

Frequently asked questions

How do I calculate a technician’s hourly rate?

Add up the wage cost per year and the overheads per technician, and divide that by the number of hours the technician invoices per year. That gives you the cost per billable hour. On top of that, add the markup you need for profit, risk and investment.

What is the difference between hourly wage and hourly rate?

The hourly wage is what the technician earns gross per hour. The hourly rate is what the customer pays per hour, and it must also cover the employer contributions, the bonuses, the unbilled hours, the van, the office and your profit.

How many of a technician’s hours are billable?

There is no fixed figure for it: it depends on travel, internal work, leave and how you charge for trips. Measure it over a few months in your own time records, by dividing the billable hours by the paid hours.

Can Service Suite use a different hourly rate per technician or per type of work?

No, not in the settings: they hold one hourly rate and one minimum per intervention. If the intervention belongs to a confirmed sales order, the invoice takes over the prices of that sales order. Otherwise, accounting adjusts the unit price on the draft invoice before posting it.