Contractor Finance Glossary
What is Gross Profit per Labor Hour?
Definition reviewed .
Also called: gross profit per human hour, gross profit per technician hour
Gross profit per labor hour divides gross profit by a stated labor-hour basis for the same period. It is Level's core operating metric, but paid, worked and billed hours answer different questions.
When skilled labor is the capacity constraint, measuring the profit produced by that time is useful. Revenue and even blended margin can hide whether each hour of that scarce labor is actually producing profit. Gross profit per labor hour makes the constraint the headline number.
Choose the denominator before comparing. Paid hours include paid leave as well as work; worked hours include drive time, callbacks and idle time; billed hours describe profit per invoiced hour. Include burdened field labor in cost of revenue and hold the accounting basis constant. In healthcare use a specified provider-hour basis; in staffing, per-recruiter headcount is a separate measure from per-recruiter-hour or placed-worker-hour.
Illustratively, $100,000 gross profit / 1,000 hours = $100/hour. Later $90,000 / 800 hours = $112.50/hour. The ratio rose while total gross profit fell, so read gross profit, hours and the ratio together.
How it is calculated
Gross profit per labor hour = gross profit for the period divided by the chosen paid, worked or billed labor hours for that same period. State the chosen basis, labor cost classification and included roles; do not compare ratios built on different denominators.
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