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Hourly Billing Rate Formula:
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The hourly billing rate is the amount a business charges clients per hour of work. It covers not only the employee's salary but also overhead costs and accounts for non-billable time, ensuring the business remains profitable.
The calculator uses the billing rate formula:
Where:
Explanation: This formula ensures that all business costs (salary and overhead) are covered by the hourly rate, while accounting for the actual time that can be billed to clients.
Details: Proper billing rate calculation is essential for business profitability, accurate project pricing, competitive positioning in the market, and ensuring sustainable business growth.
Tips: Enter annual salary in dollars, annual overhead costs in dollars, and total billable hours per year. All values must be valid (salary ≥ 0, overhead ≥ 0, billable hours > 0).
Q1: What should be included in overhead costs?
A: Overhead includes rent, utilities, software subscriptions, equipment, insurance, administrative costs, and other business expenses not directly billable to clients.
Q2: How do I determine billable hours per year?
A: Calculate total working hours minus non-billable time (administration, training, meetings, vacations). Typically ranges from 1,000-1,800 hours annually.
Q3: Should I include benefits in the salary calculation?
A: Yes, include all employment costs - base salary, bonuses, health insurance, retirement contributions, and other benefits.
Q4: How often should I recalculate my billing rate?
A: Review annually or whenever there are significant changes in costs, salary, or business model to ensure rates remain profitable.
Q5: What if my calculated rate is higher than market rates?
A: Consider reducing overhead, increasing efficiency to boost billable hours, or demonstrating added value that justifies premium pricing.