To get started with implementation of flat rate pricing, it is essential to determine your Break-even Labor Rate.
Follow along with the steps below:
Step 1: Determine your Annual Total Costs of Doing Business.
There are 3 main categories within your Annual Total Costs of Doing Business
Labor costs
Materials costs (which you’ll need later when setting the materials for the jobs but not for the break-even labor rate calculation)
Overhead (which consists of all the expenses your company incurs outside of labor and materials)
In this instance, let’s say your Annual Total Cost of doing business is $480,000/ year.
To determine your weekly cost of doing business, simply divide your Annual Total Costs of Doing Business by 52 weeks in a year.
$480,000/52= $9,230.77
Step 2: Determine your Average billed hours per week. This is the total billed hours across all of your jobs.
In order to determine your Average billed hours per week, we can find our average total jobs, and multiply by the average job time.
Start with how many techs you have. In this example let's say we have 4 techs.
Next determine how many jobs each tech works on an average day. For now, let's say 2.
Multiply your number of techs by the average jobs per day. So for our example, 4 techs x 2 jobs a day, is 8 jobs total per day.
Multiply this number by the days in a work week. If you operate Monday-Friday this will be 8 x 5 = 40 jobs per week.
Finally, multiple this by the average time it takes for a job. If it is 2 hours, then our weekly billable hours will be 40 jobs x 2 hours or 80 average billable hours.
Step 3: Calculate Your Break-Even Labor Rate
All we need to do to calculate our Break-Even Labor Rate is divide your cost of business by your billable hours.
$9,230.77/80= $115/hour This is your break even labor rate.