Setting your electrical shop's hourly rate by copying a competitor or choosing a number that feels right is a quick way to stay busy yet still come up short. Many electrical shop owners are in exactly that position, not because they lack hustle or skill, but because no one ever showed them how to set a rate that works for them.
The good news is that you do not need an accounting background to get this right. With the numbers you already have and a clear process, you can set a rate that covers your actual costs and delivers real profit, including a salary for yourself as the owner.
The following five steps are designed specifically for small electrical shops. Work through them once, and you will know exactly what your rate should be.
Step 1: Define What Profitable Means for You
Before you pick up a calculator, you need a target. Profitability means different things to different owners, so be specific from the start.
For a small electrical shop, profitability means more than covering the company’s bills. It must account for your personal income as the owner and set aside real profit for growth and reserves.
Answer these questions before you run any numbers:
How much do you want to take home each year as the owner?
How much net profit do you want the business to generate after all expenses and your compensation?
How many technicians and trucks do you realistically have available to generate that revenue?
Having clear targets keeps you from settling on a rate that feels comfortable yet still leaves you short. Build your rate to meet your numbers.
Step 2: Know Your True Labor Cost Per Hour
Most owners know what they pay in hourly wages. Fewer have examined the true cost of each hour of the business.
Your fully burdened labor cost per hour starts with base wages and overtime, then adds everything on top: payroll taxes, workers’ comp, health benefits, paid time off, training hours, uniforms, and the tools you supply. When you total it for a single technician over a full year and divide by their realistic billable hours, the result is almost always higher than owners expect.
That gap, between what you think labor costs and what it really costs, is often where the margin disappears. A shop charging rates that felt competitive can still be underwater once the full picture comes into view.
Step 3: Know What Your Overhead Costs Per Billable Hour
Once you have a handle on labor, the next step is to determine how much overhead each billable hour must absorb.
Collect your last 12 months of financials and sum all expenses that keep the business running: rent, utilities, office staff, vehicles, insurance, software, marketing, and professional services, such as your CPA or bookkeeper. Then divide that total by the number of billable hours your techs logged over the same period.
The result tells you how much every hour in the field must be recovered before you make a single dollar of profit. For most small shops, this number surprises people. Overhead runs higher than expected, billable hours run lower, and the combination squeezes whatever margin the labor cost left behind.
Step 4: Add Owner Pay and Profit to Build Your Rate
Breaking even is not the goal. A rate that covers only labor and overhead leaves no cushion for slow periods or unexpected costs and no funds to invest in growing the business. Unless you have already built your own pay into the overhead calculation, you are essentially working for free.
This is the step most owners skip. They figure out what it costs to run the business and price accordingly, but they never account for paying themselves a real salary. That amount needs to be built into the rate, just like any other cost, and then divided across your total billable hours so every job contributes toward it.
On top of that, set a net profit target. For many healthy electrical shops, aiming for 10 to 20% net after all costs, including owner pay, is a realistic range. When you consider the full picture, the price you need to charge is usually well above what most shops currently charge. That discomfort is the point. The goal is a rate that funds the business you are trying to build.
Step 5: Adjust for What Your Hours Are
A common trap in these calculations is assuming your techs bill 40 hours per week. The actual number is almost always lower.
Drive time, callbacks, training, shop time, cancellations, and slow seasons all erode billable production. If you base your rate on the theoretical maximum and your techs bill significantly less, you will fall short every time, even if the rate looked right on paper.
The fix is simple: use a realistic estimate of billable hours when running the calculation, not an optimistic one. Build enough margin into your rate to absorb normal inefficiency, then work to improve production over time. Better dispatch and tighter scheduling add billable hours, and every additional hour you recover spreads your overhead over more production, strengthening your margin without changing your rate at all.
Time and Materials vs. Flat-Rate: Where Your Hourly Rate Fits
Once you have a solid hourly rate, you have two primary ways to apply it.
With time-and-materials pricing, you bill at that rate plus materials. With flat-rate pricing, your hourly rate drives the fixed-price menu customers see.
T&M can feel simpler, but it tends to shift the conversation toward how long a job takes rather than the value you deliver. Flat-rate pricing, when based on a solid internal rate, lets you set prices with confidence and protect your margin even when a job becomes more complicated midway.
Either way, your internal hourly rate is the foundation. Whether the customer ever sees it on an invoice does not change what it must accomplish for the business.
Common Mistakes That Eat Into Profit
As you work through your numbers, watch for these:
Copying competitors: You have no way of knowing whether the shop down the street is truly profitable. Many are not.
Ignoring burden and overhead: Focusing only on wages and a couple of obvious line items leads to undercharging before you even start.
Overestimating billable hours: Assuming 40 billable hours per tech per week makes your rate appear lower than it should.
Leaving rates unchanged: Costs are rising. If you have not revisited your rate in the past 12 to 18 months, you are likely already behind.
Disconnecting rate from strategy: Your hourly rate should support your goals, whether that means adding a truck, improving benefits, or investing more in marketing.
A Quick Checklist to Get Your Rate Right
Pull your last 12 months of financial statements and payroll reports
Calculate the fully burdened labor cost per hour for each billable role
Total your annual overhead and divide by total billable hours
Add owner pay and your net profit target to calculate your minimum profitable hourly rate
Compare your current rate with that new number
Update your hourly rate and your pricebook
Schedule a quarterly review to reassess actual billable hours, costs, and margins
If the gap between your current rate and your new profitable rate feels large, you do not have to close it in one step. You can phase in increases with a clear plan and a realistic timeline.
Ready to Price Your Work with Confidence?
You can absolutely work through these numbers on your own. When you are ready to check them against real benchmarks and hear from contractors who have already done this work, Service Nation membership gives you exactly that.
Members get access to pricing tools built for the trades and connect with a peer community of electrical contractors who are facing the same decisions.
Join Service Nation today and start pricing your work with the numbers and the community to back it up.