How Do I Calculate the Labor-To-Sales KPI?

A Contractor University Member recently utilized the Ask-The-Expert Q&A feature within the member dashboard by submitting the following question and received the response below.

Contractor Question:

“How do you calculate the Labor-to-Sales KPI?”

Contractor University Expert Response:

“This KPI specifically measures labor cost as a percentage of the labor portion of the retail sale—not including parts. It’s a critical metric for understanding pricing structure and ensuring profitability on service calls.

We’ve consistently found that a 22% labor-to-retail-labor ratio is ideal.

• Gross Profit Per Hour (GP/hour) of $150 or more, even at 50% efficiency (i.e., when a tech is only billable for half their time).
• A $4.00 gross profit for every $1.00 of direct labor cost.

These targets are achievable when labor is priced correctly and the right flat rate pricing strategy is in place.

Current labor rates are holding at $525/hour, with average ticket prices nearing $550. While dollar amounts will fluctuate based on region and inflation, the 22% ratio remains a consistent and reliable benchmark.

I hope this helps!”

Contractor University members can click here to log in to their member dashboard and submit a question through the Ask the Expert portal.