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Billable Rate Formula:
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The billable rate represents the hourly rate a company charges clients for an employee's services. It covers the employee's salary, overhead costs, and includes a markup for profit and business sustainability.
The calculator uses the billable rate formula:
Where:
Explanation: The formula calculates the minimum hourly rate needed to cover costs, then applies a markup percentage to ensure profitability.
Details: Accurate billable rate calculation is crucial for business profitability, competitive pricing, resource allocation, and financial planning. It ensures that all costs are covered while maintaining desired profit margins.
Tips: Enter annual salary in dollars, total overhead costs, estimated billable hours per year, and desired markup percentage. All values must be valid (salary ≥ 0, overhead ≥ 0, hours > 0, markup ≥ 0).
Q1: What should be included in overhead costs?
A: Overhead includes benefits, office space, equipment, software licenses, training, administrative support, and other indirect costs associated with the employee.
Q2: How many billable hours should I use per year?
A: Typically 1,800-2,000 hours for full-time employees, accounting for vacations, holidays, sick days, and non-billable administrative work.
Q3: What is a reasonable markup percentage?
A: Markup typically ranges from 15% to 50%, depending on industry, competition, value provided, and business goals.
Q4: Should I use gross or net salary?
A: Use gross salary (before taxes) as this represents the actual cost to the company for the employee's compensation.
Q5: How often should billable rates be reviewed?
A: Rates should be reviewed annually or whenever there are significant changes in costs, market conditions, or business strategy.