What a technician hour really costs

Ask most MSP owners what a technician costs and you will hear a salary. Ask what an hour of that technician's time costs and the answer is usually the salary divided by 2,080. Both numbers understate the real cost, sometimes by a wide margin.

The fully loaded cost of a technician hour is everything you spend to keep that person working, divided by the hours they actually spend on client work. It is the number underneath every agreement price, every project quote and every margin report you run. If it is wrong, all of those are wrong in the same direction.

Start with the full annual cost of the person

Build the cost side first. For each technician, or for each role level if you prefer to average, add up a year of:

• Gross wages, including any bonuses or on-call pay you expect to pay.
• Employer payroll taxes: the employer share of Social Security and Medicare, plus federal and state unemployment taxes.
• Benefits you pay for: health insurance premiums, retirement plan contributions, and any stipends.
• Workers' compensation insurance, if it is billed separately rather than bundled into payroll.
• Tools and software assigned per technician: PSA and documentation seats, remote access licenses, a phone plan.
• Equipment: laptop, monitors and peripherals, spread over their useful life.
• Training and certifications: courses, exam fees, and conference costs.

Leave out general overhead like rent, the owner's salary and accounting fees. Those are real costs, but they belong in a separate overhead allocation. Mixing them into technician cost makes it hard to tell whether a problem is in service delivery or in the rest of the business.

One trap: paid time off is already inside the salary. A salaried technician is paid for 2,080 hours whether they work all of them or take three weeks off. Do not add vacation pay as a separate line. Instead, account for it on the hours side, which is where it actually changes the math.

Then shrink the hours to the ones that produce work

Start with 2,080 paid hours per year for a full-time employee. Subtract paid holidays and paid time off to get available hours, the time the person is actually at work.

Then subtract time that is necessary but not tied to a client: team meetings, internal projects, training time, documentation of your own systems, and the general friction of a workday. What remains is productive hours, time spent on client tickets, agreement work and projects.

Which denominator you use depends on the question. Cost per paid hour is useful for payroll budgeting. Cost per productive hour is the one to use when you price services or measure whether a client is profitable, because clients only consume productive hours.

A worked example

The numbers below are illustrative, chosen to be round. They are not benchmarks. Use your own payroll records and time data.

Now the hours. Assume 15 days of PTO and 8 paid holidays, which is 23 days or 184 hours. That leaves 1,896 available hours. Assume a quarter of available time goes to internal and non-client work, which is 474 hours. Productive hours come to 1,422.

• Cost per paid hour: $80,400 / 2,080 = $38.65
• Cost per available hour: $80,400 / 1,896 = $42.41
• Cost per productive hour: $80,400 / 1,422 = $56.54

The salary alone works out to about $28.85 per paid hour. The figure that should drive pricing for this technician is nearly twice that.

Keeping the number honest

Recalculate at least once a year, and again when something changes: a raise cycle, a new benefits plan, or a tool that moves from company-wide to per-seat pricing. If you have several technicians at different levels, calculate by role rather than blending your most senior engineer with a new help desk hire.

The non-productive percentage is the assumption that moves the result most, and it is the one most likely to be guessed. Pull it from your PSA time entries instead, comparing logged client time against hours actually paid. If a large share of paid time has no entry at all, that is worth investigating before you trust any per-hour figure.

Once you have a defensible cost per productive hour, compare it with what you earn per hour on agreements and projects. The gap between the two is your labor margin, and it is the first number to check when overall gross margin slips.

This guide is general information, not tax or accounting advice. Payroll tax rates, benefit treatment and how costs should be classified on your books depend on your situation, so confirm the specifics with your CPA.