How to Set Hourly Rates for Field Service Technicians (The CFO Formula)

Most service businesses underprice their billable hours by 15–35%. Not from cowardice — from arithmetic. Owners price labor at the wage they pay the tech, plus a “markup” that feels reasonable, and never close the loop on the four costs that turn a wage into a true billable rate. The result: the books look healthy until tax time, when the accountant explains why the bottom line keeps shrinking even as revenue grows.

The formula has four inputs. Every one of them gets ignored at least sometimes. Here is the full math, a worked example, and the per-trade benchmarks for 2026.

Why most service businesses underprice by 15–35%

Three patterns explain almost all of the gap. The first: pricing the wage, not the loaded labor cost (FICA, workers’ comp, paid leave, equipment). The second: never assigning overhead a per-billable-hour cost (a $96K/year operating budget is invisible until somebody divides it by billable hours). The third: ignoring utilization (a tech billed 70% of paid hours, not 100% — the unbilled 30% has to be carried by the billed 70%).

A wage of $24/hour, marked up 50%, lands at $36/hour billed. After the four-input formula, the same tech needs $76/hour billed to clear a 30% margin. The gap — $40/hour — is the difference between a margin business and a wage business with extra steps.

The 4-input formula

Every billable hour has to absorb four costs and clear a target margin. The formula:

Input 1: loaded wage

Base wage × payroll burden. Burden covers FICA (7.65%), workers’ compensation (3–18% depending on trade and state), unemployment insurance (1–6%), paid time off (4–8%), benefits (0–10%), and the small things owners forget: cell phone allowance, uniform laundering, mandatory training time. Burden multipliers run 1.18 (low-risk states, no benefits) to 1.40 (roofing in high-comp states, with benefits). Use 1.25 as a default; tighten it after the first year of payroll data.

Input 2: overhead per hour

Annual operating cost ÷ annual paid hours. Operating cost includes everything that isn’t direct labor or direct materials: insurance, vehicles, fuel, software, dispatcher salary, owner draw if the owner is no longer billing hours, marketing, accounting fees, legal fees, office rent. A two-tech operation will run $80K–$140K of annual overhead. Two techs at 2,080 paid hours each = 4,160 paid hours. $110K overhead ÷ 4,160 = $26.44/hour.

Input 3: utilization

Billable hours ÷ paid hours. A tech paid 40 hours a week who bills 28 of them is at 70% utilization. The unbilled 30% — drive time, idle time, callbacks, training, paperwork — is real and has to be carried somewhere. Healthy field-service utilization runs 65–78%. Above 80% usually means the tech is being paid for less than the actual on-clock time (a sign of underpaid labor or unrecorded overtime). Below 60% means the route is broken or the dispatcher is.

Input 4: target margin

The floor. Most mature service businesses operate at 28–35% gross margin on labor, with 35–45% achievable in trades with strong recurring-plan attach. Pricing below the margin floor is fine for a single job (a strategic loss to win a big customer) but never the published rate.

Worked example: $25/hour HVAC tech in a U.S. metro market

A two-tech HVAC operation in a typical U.S. metro. $25/hour base wage, 1.28 burden multiplier (HVAC workers’ comp class is mid-range, modest benefits), $115K of annual overhead, 4,160 paid hours, 70% utilization, 30% target margin.

A $125/hour rate is going to feel high to an owner who has been billing $85. It is not high — it is correct. The $85 rate was running a 12% margin on labor; the $125 rate runs 30%. The $40 gap is what funds growth, fleet replacement, and the owner’s ability to stop riding along on three-tech weeks.

Per-trade benchmarks (2026, U.S. metro)

Roofing rates run high because workers’ compensation classes are punishing and utilization is structurally lower (steep-pitch work caps daily hours). Window-cleaning rates run modestly because the labor cost stack is the leanest of the major trades — small consumables, modest insurance, high utilization. The relative shape — roofing is roughly 1.6× window cleaning — is the same in low-cost and high-cost markets; the absolute numbers slide together.

The “$1 below = $14K/year” trap

Small under-pricing compounds in a way that is hard to feel in the moment. A tech billing 1,400 hours a year at $1 below the right rate gives away $1,400 a year per tech. A ten-tech operation gives away $14,000. A five-year-old ten-tech operation that was always “a few dollars under” has compounded $70,000 of margin into customer goodwill they can no longer collect on.

The fix is mechanical: re-run the formula every year, in January, with the actual numbers from the prior year. Update the published rate. Send the rate-update notice. The customers who were going to leave over $4 were going to leave anyway; the customers who stay re-confirm the relationship at the right price.

Three rate-increase scripts

Plan customers — written notice, 30 days ahead

“As of [date], the [plan name] is moving from $X to $Y per visit. The change reflects increases in wages, fuel, and insurance over the past year. Your visit cadence and scope of work are unchanged. If you have any questions, reply to this email.” That is the entire script. Customers who were going to push back will push back; most won’t.

Walk-in customers — at the next call

“Our service rate this year is $Y per hour. The visit minimum is one hour. Materials are quoted before installation. Would you like to book?” The number is stated calmly, once, then the close. No apologies, no comparisons, no framing.

Commercial accounts — annual review

“Per the renewal clause in our agreement, the rate adjusts on [renewal date] to $Y per hour. Attached is the updated agreement, identical to the prior year except for the rate line. The signed copy is needed by [date].” Procedural, on-paper, on-cadence. Commercial accounts respect rate increases that arrive on the schedule the agreement promised.