Billable Rate Calculator

A billable rate is the hourly fee a business charges clients for services provided by their employees. It’s crucial because it determines your company’s revenue and profitability.

Your billable rate must cover not just the employee’s salary, but also overhead costs, benefits, non-billable time, and target profit margin. Setting it too low can lead to financial losses, while setting it too high might make you uncompetitive in the market.

To calculate your minimum break-even billable rate:

Take the employee’s annual salary (e.g., $80,000)

Add benefits cost (typically 25-35% of salary, so around $24,000)

Add allocated overhead costs (office space, equipment, software, etc. – let’s say $40,000)

Total annual cost = $144,000

Divide by actual billable hours (typically 1,500 hours accounting for holidays, training, admin time)

Break-even rate = $96/hour ($144,000 ÷ 1,500)

Any rate below this would result in a loss for the company.

Your employee’s cost rate is their direct employment cost per hour (salary + benefits ÷ annual hours), while the charge out rate is what you bill clients. For example:

Cost rate: $50/hour ($80,000 salary + $24,000 benefits ÷ 2,080 hours)

Billable rate: $150/hour (3x multiplier to cover overhead and profit)

The difference between these rates (in this case $100/hour) helps cover overhead costs and generate profit. Industry standards for this multiplier typically range from 2.0x to 4.0x depending on your sector and service type.