Effective Hourly Rate
Definition
Effective hourly rate is total billed revenue divided by total paid hours, revealing what each tech is actually earning the business per clock hour.
What Effective Hourly Rate Means for Your Business
What it means
Effective hourly rate is the output-side mirror of burdened labor rate. Burdened rate asks what a tech costs per hour. Effective rate asks what a tech brings in per hour. The gap is your gross margin on labor.
Why it matters
This number cuts through noise. It lets you compare techs fairly even if they run different trades or calls. It also exposes silent waste: a tech on the clock 40 hours who only delivers 22 billable hours has half the effective rate of a peer.
How contractors use it
Payroll feeds hours and invoicing feeds revenue. Weekly or monthly reports rank techs by effective hourly rate and identify the outliers for training or pricing review.
Real-World Example
A plumbing shop found its top tech had a $148 effective hourly rate and its bottom tech was at $72. Coaching the bottom tech up to $100 over 90 days added $58,000 in annual gross profit.
Related Terms
Burdened Labor Rate
Burdened labor rate is a technician's true hourly cost after adding payroll taxes, benefits, and other employment overhead on top of base wages.
Billable Hours
Billable hours are the portion of a technician's paid time that is actually invoiced to customers as productive service work.
Technician Utilization Rate
Technician utilization rate is the percentage of a tech's paid hours that are actually billed to customers as productive work.
Technician Revenue
Technician revenue is the total dollar amount of work that an individual field technician has billed over a given time period.
Gross Margin
Gross margin is revenue minus the direct cost of labor and materials, expressed as a percentage of revenue.
Put This Into Practice with Free Software
Kaldr Tech handles effective hourly rate and everything else you need to run your shop. $0/month, 3.5% + 30¢ per transaction.