Billable rate calculator for agencies
Work out the hourly rate your agency has to charge to cover what it costs to run, and the rate that hits the profit margin you want. Enter your own salaries, overheads and hours. It runs in your browser and nothing you type is sent anywhere.
| Role | Billable h a year | Break-even | For margin |
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How this is worked out
The rate has to recover a full year of costs from the hours clients actually pay for. So the calculator adds up a year of costs, works out a year of billable hours, and divides one by the other.
- Yearly cost = salaries + employment costs + overheads (monthly figures x 12)
- Billable hours = people x working weeks x hours a week x utilisation
- Cost per billable hour = yearly cost / billable hours
- Break-even rate = cost per billable hour
- Rate for target margin = cost per billable hour / (1 - target margin)
Margin and markup are not the same thing. Margin is profit as a share of the price. Markup is profit as a share of the cost. To hit a 20 percent margin you divide the cost by 0.8, which is a 25 percent markup. Adding 20 percent to the cost is a 20 percent markup, and leaves you with a margin of only 16.7 percent. The general rule: markup = margin / (1 - margin), and margin = markup / (1 + markup).
The role table splits the same total by role. Each role carries its own salary and employment cost per billable hour, plus an equal share of overheads for every billable hour in the agency. It assumes every role hits the same utilisation, which is rarely true, so use it as a starting point. Added up across all billable hours, the role rates recover exactly the same yearly cost as the team rate.
Your numbers, worked through
Questions
How do I work out my agency's hourly rate?
Add up a year of costs: the salaries of the people who do client work, the employment costs on top of those salaries, and every overhead, including the salaries of people who do not bill. Divide by the hours your team will actually bill in a year, which is people x working weeks x hours a week x utilisation. That is your break-even rate. To build in a profit margin, divide the break-even rate by one minus the margin: for a 20 percent margin, divide by 0.8.
What is the difference between margin and markup?
Margin is profit as a share of the price. Markup is profit as a share of the cost. On a cost of 100 and a price of 125, the profit is 25, which is a 20 percent margin (25 of 125) and a 25 percent markup (25 of 100). Adding 20 percent to your cost gives a 20 percent markup, which is only a 16.7 percent margin. To get a true 20 percent margin you divide the cost by 0.8.
Why divide by billable hours and not all the hours people work?
Because only billable hours earn anything. You pay for every hour, including reviews, admin, pitches and the gaps between projects, but those costs can only be recovered through the hours clients pay for. Dividing by all paid hours gives a lower cost per hour that looks right on paper and loses money in practice. The calculator shows both so you can see the difference.
What should go in overheads?
Everything the agency pays for that is not the salary of someone doing client work: rent, software, equipment, insurance, accountants, marketing, and the salaries of people who do not bill, such as finance, admin, and the part of the founders' time that is not client work. Put people who bill in the team rows and everyone else in overheads, so nobody is counted twice.
Is the result the rate I should charge?
It is the floor. Charging less than the break-even rate loses money on every billable hour, and charging less than the target-margin rate means missing your margin even if every estimate is right. What you charge above that depends on the value of the work, the client and the market. The result is also only as good as the utilisation you enter: if your team bills less than you assumed, the real cost per hour is higher.
Should every role have a different rate?
Many agencies use role rates because a senior strategist costs more per hour than a junior designer. The table under the result splits the rate by role: each role carries its own salary cost per billable hour plus an equal share of overheads per billable hour, assuming every role hits the same utilisation. If you sell one blended rate instead, use the team figure.
Related tools and guides
A rate is a plan. Whether it holds depends on whether the work fits the hours you sold. Ancor shows the margin on every live project as hours are logged, warns you when one is heading below target, and shows what work beyond its estimate cost you, so you can fix the price or the scope while the project is still running.