Billable rate calculator

1. 1.Add up the full cost of a person. Salary plus employer taxes, pension, and benefits, plus a share of overhead: rent, software, finance, and admin staff.
2. 2.Work out billable hours. Contracted hours times working weeks gives available hours. Multiply by target utilization to get hours you will actually bill.
3. 3.Divide cost by billable hours. That is the break-even rate: every hour billed below it loses money.
4. 4.Add margin. Gross margin is profit divided by revenue, so divide the break-even rate by one minus the margin. Adding 50% to cost gives a 33% margin, not 50%.

A consultant earns $80,000. Employer costs add 20% and overhead adds $18,000, for a fully loaded cost of $114,000. At 40 hours a week for 46 weeks there are 1,840 available hours, and at 75% utilization 1,380 of them are billable.

Break-even is $83 an hour. To earn a 50% gross margin, bill $165 an hour.

• Dividing salary by 2,080 hours. That assumes every working hour is billable and ignores employer costs and overhead. The result is a rate that loses money.
• Confusing markup with margin. A 50% markup on cost is a 33% gross margin. Price from the margin you want.
• One rate for every role. Seniors cost more and bill fewer hours. Use a rate card by role, then check the blended rate on each project.
• Ignoring write-offs. If you write off a share of hours, your realization rate lowers the rate you actually earn. Raise the rate or fix the scope.