Auto repair labor rate calculator: a worked example you can copy
Your labor rate is (yearly costs − parts gross profit + the profit you want) ÷ the hours you actually bill. Work it out in four steps below with a real example, then put your own numbers in. Nothing here needs software: a pen and a phone calculator will do.
The example is a made-up two-technician shop. The numbers are round and the method is the point. For a state-by-state view of what other shops charge, see auto repair labor rates by state.
Step 1: add up a year of costs
Include everything it costs to keep the doors open, and include a wage for yourself. If you leave your own pay out, the rate comes out too low and the shop looks profitable while you work for free.
| Cost | Example, per year |
|---|---|
| Two technicians at $58,000 | $116,000 |
| Payroll tax and benefits on techs (20%) | $23,200 |
| Service advisor ($52,000 plus 20%) | $62,400 |
| Rent | $36,000 |
| Utilities | $9,600 |
| Insurance (liability, garage keepers, comp) | $12,000 |
| Shop software and scan tool subscriptions | $4,800 |
| Tools and equipment, replaced over time | $8,400 |
| Marketing | $6,000 |
| Shop supplies and disposal | $7,200 |
| Accounting, licences, miscellaneous | $6,000 |
| Owner pay | $70,000 |
| Total | $361,600 |
Use last year's bank and card statements, not memory. Shops forget the annual items: insurance premiums paid in one lump, software renewals, tool replacements and licence fees. If your costs are not yet known (you are still opening), our guide to what it costs to start an auto repair shop lists every line.
Step 2: take off what parts earn
Parts are sold at a markup, and the gross profit on them pays some of those costs. Parts gross profit is parts sales minus what you paid for the parts. In the example the shop sells $200,000 of parts at a 40% margin, so parts earn $80,000.
Costs left for labor to cover: $361,600 − $80,000 = $281,600.
Be honest about the margin. A shop that sells $200,000 of parts but gives away markup on every ticket may only keep 30%. The margin that counts is the one on your actual invoices, not the one on your price matrix. See how to charge for auto repair for a parts matrix.
Step 3: add the profit you want
Owner pay is already in step 1. Profit is what is left after everyone, including you, has been paid. It pays for a slow winter, a new lift, a bad month and growth. Pick a number you can defend; the example shop asks for a modest $30,000.
$281,600 + $30,000 = $311,600 that labor must earn.
Step 4: count the hours you will really bill
This is the step that most shops get wrong. A technician is not billing eight hours a day.
| Line | Example |
|---|---|
| Hours at work per tech per year (2,080 less ~10% for holidays, sick days and vacation) | 1,872 |
| Two techs | 3,744 |
| Share of those hours that become billed hours (waiting on parts, comebacks, cleaning, training, slow days all come out of the rest) | 75% |
| Billed hours | 2,808 |
Your billed share is the number to measure. In shop software, take hours sold on repair orders and divide by hours the techs were clocked in (or paid). Yours is whatever your reports say, not what a coach says it should be; the table below shows what each level does to your rate.
The answer
$311,600 ÷ 2,808 billed hours = about $110.97 an hour. Round to a posted rate of $111, or a little higher if the local list supports it.
Same shop, no parts profit counted: $361,600 ÷ 2,808 = about $128.78. That is the rate that breaks even if parts only earn their cost. It shows how much your parts margin is carrying. Do not lean on it too hard: parts margins shrink when customers bring their own parts or shop online.
How the rate moves with billed hours
Same costs and profit goal ($311,600), only the billed share changes:
| Billed share of hours at work | Billed hours | Rate needed |
|---|---|---|
| 60% | 2,246 | $138.71 |
| 70% | 2,621 | $118.90 |
| 75% | 2,808 | $110.97 |
| 80% | 2,995 | $104.03 |
(Billed hours are rounded in the table; the rate uses the unrounded figure.) A shop at 60% needs a rate $28 higher than the same shop at 75%. Before you raise prices, ask whether you can raise billed hours: fewer comebacks, parts staged before the car comes in, a schedule that fills the afternoon, a second job queued when one waits on parts. Our routine for running a successful shop covers the weekly numbers.
Posted rate versus effective rate
The posted rate is what's on your sign. The effective rate is what you actually collect for each billed hour, and it is nearly always lower.
Example: a month with 220 billed hours at a posted $140 should bring in $30,800 of labor. But you gave 10% off to regulars, a few jobs got written down after a comeback, and the total collected was $27,720. $27,720 ÷ 220 = $126 effective. If your costs only work at $130, you are losing money on a sign that says $140.
Track it monthly: labor sales collected ÷ hours billed. Leaks to look for: discounts, free diagnosis, free rechecks, unbilled "quick looks", and flat-rate times that are shorter than real time on your cars. Our guide to auto repair labor guides and flat rate explains the last one.
Should every job use the same rate?
Many shops use one rate for everything because it is easy to explain. Some use two or three: a general rate, a higher rate for diagnostics and electrical, and a rate for specialist work such as European cars, hybrids or ADAS calibration. Tiering is worth it only if the expensive work really costs you more (tools, training, slower techs) and you can explain it in one line to a customer. If you start with one rate, you can add tiers later.
Check it against the market
A calculated rate is the floor you need, not the price you must charge. Compare it with eight to ten shops near you (call, or read their sites), and with the averages: Tekmetric's 2026 figure for the US is $132 an hour [1]. If your number is far above your local list, look at your costs and billed hours before you blame the market. If it is below, you may be leaving money on the table.
When you raise a rate, tell people plainly, put it on your website and your counter, and apply it to new estimates. A site that shows your services, your warranty and what to expect makes a higher rate easier to accept; see auto repair shop website design. Once the rate is right, you need the bays full; auto repair shop marketing ideas lists what to try in order.
A quick sanity check on the answer
Once you have a rate, test it against one real month. Take last month's billed hours and multiply by the new rate. Add the parts gross profit you actually made. Subtract the month's real costs, including your pay. If the shop would have been left with roughly a twelfth of your profit goal ($2,500 in the example), the rate works. If it would have been short, find out which input was wrong: costs higher than listed, billed hours lower than assumed, or parts margin thinner than the matrix says. Fix that input before you touch the price, because a rate built on a wrong input only moves the problem to next year.
Also look at the number from the customer's side. A $111 rate and a $139 rate differ by $28 an hour, which on a two-hour brake job is $56. Most customers will pay that for a shop they trust, and will not pay it for a shop they can't tell apart from the one down the road. That is why the clarity of your estimate, your warranty and your website belong in the same conversation as the rate.
Mistakes to avoid
- Leaving out your own pay. The rate then only works if you work free.
- Dividing by paid hours instead of billed hours. Technicians do not bill every hour they are paid.
- Using the parts margin on your price list instead of the one you keep.
- Copying a competitor's rate without knowing their costs. They may own the building; you may not.
- Setting the rate once. Redo this sheet every year, and after any big change: a new hire, a rent rise, a new lift.
- Hiding the rate. Customers who see a rate and an itemized estimate argue less than customers who find out at pickup.
Fill in your own
- Total yearly costs, with your own pay: ______
- Minus parts gross profit (sales − cost of parts): ______
- Plus profit goal: ______
- Equals what labor must earn: ______
- Technicians × hours at work × billed share = billed hours: ______
- Line 4 ÷ line 5 = your rate: ______
FAQ
How do you calculate an auto repair labor rate?
Add a year of costs including your pay, subtract the gross profit from parts, add a profit goal, and divide by the hours you really bill.
What is the effective labor rate?
Labor dollars collected divided by hours billed. It is lower than the posted rate whenever you give discounts, write off time or bill less than actual time.
How many hours does a technician bill in a year?
It depends on the shop. Take hours at work (about 1,872 after time off in our example) and multiply by the share that becomes billed time, which your shop software reports. Our example uses 75%.
Does the rate include shop supplies?
It can. Some shops fold supplies into the rate and some itemize them. Check your state's rules first; see shop fees in auto repair.
Should I charge the same rate for diagnosis?
Many shops charge a higher rate or a flat diagnostic fee. See what to charge for diagnosis.
How often should I recalculate?
Once a year, and when rent, wages or insurance change a lot.
Want your rate, services and warranty shown clearly online? Ask us for a free homepage preview. More guides are on the auto repair guides page.
Sources
- Tekmetric, "Average Auto Repair Labor Rates by U.S. State", June 30, 2026. https://www.tekmetric.com/post/average-auto-repair-labor-rates-by-state
- All cost, margin and hour figures in the worked example are invented for illustration; replace them with your own.