Is Labor Killing Your Profit?
The Hidden Way Service Businesses Lose Money
If you run a service business—like a cleaning company, therapy practice, salon, landscaping business, or trade service—your team’s time is your product. You're not selling goods. You're selling hours, expertise, and hands-on work.
That means every minute of paid time that isn’t earning money is costing you.
The problem is, most business owners don’t realize just how much money they’re losing because of untracked labor inefficiencies.
Where Labor Leaks Happen
Here are some common ways service businesses lose money through labor:
You're paying people for 40 hours a week, but only billing clients for 25 of those hours.
Travel, admin work, cancellations, or gaps between jobs eat up time—without earning a dime.
You’re pricing jobs based on how long you hope they take, not how long they actually take.
Too much time is spent prepping, cleaning up, or doing behind-the-scenes work that isn’t billable.
Individually, these things feel small. But over a month or two? They can wipe out your profits.
Three Numbers Every Service Business Should Track
1. Labor Utilization Rate
This shows what percentage of your team’s paid hours are spent doing billable work.
Example:
If an employee is on the clock for 40 hours but only 30 of those hours are billed to clients, their utilization rate is 75%.
Goal:
Aim for 75–85%. If you’re under 70%, you probably have profit leaks.
2. Revenue Per Labor Hour
How much money is your business making for each hour someone works?
Formula:
Take your total revenue for the week or month and divide it by total hours worked (not just billable).
Why it matters:
It tells you if your pricing is strong enough, and how efficient your team is.
3. Labor Margin Per Job
This is how much money you actually keep after paying for the labor on a job.
Example:
If you charge $500 for a job and pay someone $200 to do it, your labor margin is $300.
What to look for:
Consistently low margins mean your pricing is too low or jobs are taking too long.
What You Can Do Right Now
Start tracking time better.
Even a simple spreadsheet or app where your team logs time per job can show you where hours are being lost.
Review pricing based on reality.
Use your past job data to update how long services really take. Price accordingly.
Cut out the gaps.
If your team has long breaks between jobs or spends hours driving, look at route planning or schedule stacking to save time.
Watch the data weekly, not just monthly.
Set aside 30 minutes each week to look at labor hours, revenue, and margins. The consistency is what makes the difference.
Want a Simple Tool to Help?
This simple table is designed to help you track the numbers that matter most when it comes to labor. You don’t need fancy software—just a spreadsheet, a calculator, or even a notebook.
Here’s how to put it into action:
Track Hours Worked
- Write down how many hours your team worked this week.
- Then note how many of those hours were actually billable to clients.
Calculate Your Utilization Rate
- Use the formula in the table: Billable Hours ÷ Total Paid Hours
- This shows how much of your team’s time is earning money.
Review Your Revenue Per Hour
- Add up all your revenue for the week.
- Divide that by the total hours your team worked.
- This tells you how productive your team is overall.
Check Your Labor Margin on Jobs
- For any job, subtract what you paid your team from what you charged the client.
- The bigger the margin, the healthier your pricing and time management.
Repeat Weekly
- Track these numbers each week so you can start to spot patterns.
- Over time, small improvements here can lead to big profit increases.
Final Thoughts
If you’re running a service business, it’s easy to assume staying busy means staying profitable. But if you’re not regularly checking how your team’s time is being used—and what that time is actually earning—you might be leaving money on the table without realizing it.
The good news? You don’t need to overhaul your whole business to start seeing improvements. Small adjustments—like tracking time more closely, refining your pricing, or reviewing labor performance weekly—can lead to meaningful changes in your bottom line.
Use the table above as a starting point. Keep it simple, be consistent, and treat labor like the valuable resource it is.
Your time matters. Let’s make sure it’s working for you. Schedule an appointment for a free financial review to see how your labor is working for you here!
