How to set an hourly rate
Cover costs, income and profit per billable hour.
Set the income target
Use the pre-tax income you need or want.
Add business costs
Include software, insurance, equipment, marketing and accounting.
Choose billable hours
Use a realistic annual figure after leave and admin work.
What does this tool do?
A sustainable hourly rate has to cover both the income you want and the costs of running the business, then leave room for profit. Because only part of the week is billable, rate calculations divide by billable hours rather than total hours.
The Formula
Hourly rate = (Target income + Annual costs) ÷ Billable hours ÷ (1 − Profit margin)Frequently Asked Questions
Why is the rate based on billable hours only?
Non-billable time such as sales, admin and training does not generate revenue. Spreading fixed costs over billable hours only gives a rate that can actually sustain the business.
Should profit margin be on top of costs or included?
This calculator treats margin as a share of revenue, so revenue is divided by one minus the margin. A 15% margin means 15 cents of every revenue dollar remains as profit.