Topic · Labor Cost Control

Labor is your biggest cost. Most HVAC owners don't know exactly what it is.

Labor cost percentage is total loaded labor cost divided by gross revenue. Best-in-class HVAC companies run 25–30%. Industry average is 30–40%. The gap — on a $1M company — is worth $50,000–$100,000 in additional margin annually.

What "fully loaded" actually means

Most HVAC owners think of labor cost as base wages. Fully loaded labor cost is the total cost of keeping a technician employed: base wages, payroll taxes (7.65% employer FICA), workers' compensation insurance (which can run 8–20% of wages in HVAC depending on state and experience modifier), health insurance, vehicle costs attributable to that technician, and any tools or uniforms the company provides.

A technician earning $60,000 in base wages typically costs $85,000–$100,000 fully loaded. When you calculate labor cost percentage, it's the fully loaded number over gross revenue — not the base wage number. Most owners who think they're running at 28% labor cost are actually running at 35–38% when they load the full picture.

The calculation matters because every business decision about pricing, about headcount, and about what jobs to take should be anchored in the actual cost structure — not the number on the paycheck.

Calculate yours

Add up base wages + payroll taxes + workers comp + health insurance + vehicle costs for all field employees. Divide by your last 12 months of gross revenue. If you don't have 12 months, use 6 and annualize. That's your labor cost percentage.

Why labor cost runs high
Low technician utilization
If technicians are billing 65% of available hours, you're paying for 100% of their time but only capturing 65% in revenue. Improving utilization from 65% to 78% improves labor cost percentage without changing any wages.
Callbacks consuming non-billable technician time
Every hour a technician spends on a callback is labor cost with no revenue attached. At a 10% callback rate, roughly 10% of your labor cost is generating zero revenue.
Headcount that doesn't match call volume
Carrying three technicians for a volume that two could handle (at healthy utilization) inflates labor cost percentage. Most owners are reluctant to confront this because it's a headcount conversation.
Pricing not built on loaded labor cost
If your flat-rate or T&M pricing was built on base wage rather than fully loaded cost, you've been structurally underpricing your labor from the start. Every job has been contributing less margin than it appears.
Workers' comp experience modifier creeping up
A higher experience modifier — driven by claims — can add 5–8% to your workers' comp cost per year. Companies that don't track and manage safety outcomes pay for it in their labor cost structure.

The path from 36% to 28% labor cost

Most of the improvement comes from revenue-side moves, not cost-cutting.

Revenue-side moves (raise the denominator)

Improve technician utilization — more billable hours from the same labor base

Increase average ticket — flat-rate pricing and structured service process

Reduce callbacks — recover the non-billable labor currently consumed by returns

Improve close rate — more replacement revenue from the same estimate volume

Cost-side moves (manage the numerator)

Audit fully loaded labor cost by technician — you may have compensation mismatches

Track and manage workers' comp experience modifier through safety protocols

Evaluate vehicle cost allocation — owned vs. leased vs. employee-provided

Review benefits structure against the labor market in your geography

Know your actual labor cost percentage — and what's driving it.

We can help you calculate the real number and identify the highest-impact moves. Start with a company diagnostic.

Book a Company Diagnostic