How to use the gross profit per labor hour calculator
- Add one line per job with the amount billed, the materials and direct costs, and the labor hours it took.
- Read the headline for gross profit per labor hour across all jobs, then the table for each job.
- The best job per hour is highlighted. A loss on a job shows in parentheses.
- Open More options and enter your labor cost per hour to see profit after paying for the hours.
Formula
gross profit = billed - materials and direct costs
gross profit per labor hour = gross profit / labor hours
profit after labor = gross profit - hours x labor cost per hour
The overall figure divides total gross profit by total hours. It is not the average of the per-job figures, so a long job counts for more than a short one.
Three service jobs
Job 1 bills $900 with $300 of materials and 12 hours: $600 / 12 = $50.00 an hour. Job 2 bills $1,450 with $410 and 22 hours: $1,040 / 22 = $47.27. Job 3 bills $380 with $90 and 4.5 hours: $290 / 4.5 = $64.44.
Together the gross profit is $1,930 over 38.5 hours, which is $50.13 an hour. If the labor costs $28 an hour, that is 38.5 x $28 = $1,078, leaving $852 after labor.
Why look at profit per hour
A large job can feel profitable because the invoice is big, while a small job with little material cost earns more for each hour worked. Profit per labor hour puts jobs of different sizes on one scale, which helps when you decide what to quote, what to decline, and where to spend your time.
Hours here are the hours you count. If travel, quoting and clean-up are part of the job, include them or the figure will flatter the work. For a view that includes overhead, try the Client Profitability Calculator, and to turn a target into a price, the Freelance Rate Calculator.
Gross profit is not take-home pay
Gross profit leaves out overhead, insurance, taxes and unbilled time, so the real hourly figure is lower. The optional labor cost field shows what is left once you pay for the hours, which is closer to what the business keeps. Use the Labor Cost Calculator if you need to build a loaded hourly cost first.
Assumptions and limits
- Gross profit is billed amount minus the direct costs you enter. Overhead and taxes are not included unless you add them to the direct costs.
- Every job needs hours above zero. Billed amount and direct costs may be zero.
- Labor hours are the hours you enter, as decimals such as 4.5.
- Money is rounded to the cent, half up. Negative figures are shown in parentheses.
Frequently asked questions
How do you calculate gross profit per labor hour?
Subtract materials and direct costs from what you billed to get gross profit, then divide by the labor hours. A $900 job with $300 of materials and 12 hours earns $600 / 12 = $50 per labor hour.
Is gross profit per hour the same as an hourly wage?
No. It is what the job earns for the business per hour of labor before overhead, tax and unpaid time. Your wage is a separate cost, which the optional labor cost field subtracts to show profit after labor.
Why is the overall figure different from the average of my jobs?
The overall figure divides total profit by total hours, so jobs with more hours count for more. Averaging the per-job figures gives every job equal weight. For deciding how well your time is paid, the total-based figure is the fairer one.
What counts as a direct cost?
Costs that exist because of that job, such as materials, parts, a subcontractor or a rental. Rent, insurance and software that you pay regardless of jobs are overhead and are better handled separately.