Blended Hourly Rate Calculator
Enter the role, hourly cost (or billable rate), and total hours for each team member to calculate the weighted average.
How to Calculate Blended Hourly Rate in Excel
Understanding your blended hourly rate is critical for agencies, consultancies, and construction firms. It represents the weighted average rate of a team comprised of members with varying seniority levels and costs. While the calculator above provides an instant answer, knowing how to build this in Excel allows for scalable project management.
The Blended Rate Formula
A simple average (adding all rates and dividing by the headcount) is incorrect because it ignores the volume of work performed by each person. A blended rate must be a weighted average.
Where Total Cost is the sum of (Hourly Rate × Hours) for every employee.
Step-by-Step Guide for Excel
To calculate the blended hourly rate in Excel, you should use the SUMPRODUCT function combined with the SUM function. This is cleaner and less error-prone than manually multiplying columns.
1. Set up your data
Create a table with at least three columns:
| Row | A (Role) | B (Hourly Rate) | C (Hours) |
|---|---|---|---|
| 1 | Senior Dev | $150 | 10 |
| 2 | Junior Dev | $75 | 40 |
| 3 | Designer | $100 | 15 |
2. The Excel Formula
In a new cell, use the following formula to calculate the blended rate immediately:
Breakdown of the formula:
SUMPRODUCT(B2:B4, C2:C4): This multiplies every rate by its corresponding hours (150*10 + 75*40 + 100*15) and sums the result to get the Total Project Cost.SUM(C2:C4): This calculates the total number of hours worked.- The division gives you the weighted average per hour.
Why Use a Blended Rate?
1. simplified Client Billing: Instead of listing every employee's specific rate on an invoice, you offer a single "Team Rate." This reduces friction during contract negotiations.
2. Margin Analysis: If you are billing a client at a fixed blended rate of $120/hr, but your internal blended cost is $130/hr due to over-utilizing senior staff, you are losing money. This calculation highlights that discrepancy immediately.
3. Project Estimations: When scoping a new project, using a historical blended rate helps in estimating total costs without needing to know exactly which specific individuals will be assigned to the work yet.
Common Mistakes to Avoid
- Averaging the Rates Directly: As mentioned, (150+75+100)/3 = $108.33. However, the true blended rate based on the hours above is roughly $92.30. The simple average overestimates your revenue because it ignores that the cheaper resource (Junior Dev) is doing the majority of the work.
- Ignoring Overtime: If overtime hours incur a higher internal cost (e.g., 1.5x), those hours must be separated or the rate adjusted in the calculation to ensure accuracy.