Total annual cost of the employee (salary, taxes, insurance).
Rent, software licenses, equipment (per person).
Hours actually charged to clients (exclude admin/meetings).
52 weeks minus holidays, vacation, and sick leave.
Desired net profit margin on services.
Please check inputs. Margin must be less than 100%.
Recommended Hourly Charge Rate–
Break-Even Hourly Cost–
Total Annual Cost (Salary + Overhead)–
Total Billable Hours per Year–
Daily Charge Rate (8 Hours)–
Potential Annual Revenue–
Mastering Your Agency's Pricing Strategy
Determining the correct hourly or daily charge rate is one of the most critical financial decisions for any agency, whether you specialize in marketing, software development, design, or consulting. Setting a rate that covers costs while generating a healthy profit margin ensures the sustainability and growth of your business.
How the Agency Charge Rate is Calculated
This calculator uses a "Cost-Plus-Margin" approach, tailored specifically for service-based businesses. The logic follows these steps:
Calculate Total Capacity: We determine the total number of hours an employee can actually bill to a client. This is rarely 40 hours a week. After internal meetings, admin tasks, and breaks, the industry standard for utilization is often between 60% and 75% (approx. 25-30 hours).
Determine Total Cost of Employment: This includes the base salary plus the "burden"—taxes, insurance, and benefits.
Allocate Overheads: Every employee must support a portion of the company's fixed costs, such as office rent, software subscriptions, legal fees, and utilities.
Establish Break-Even: By dividing the total costs by total billable hours, we find the absolute minimum hourly rate needed just to keep the lights on.
Apply Profit Margin: Finally, we adjust the break-even rate by your desired profit margin to arrive at the final client-facing price.
Understanding the Inputs
Allocated Annual Overhead: This is the trickiest number for many agencies. To find this, take your total annual fixed expenses (rent, admin salaries, software) and divide it by your number of billable employees. This gives you a "per seat" cost.
Billable Hours per Week: Be realistic. If you calculate based on 40 hours but your team only tracks 30 hours to client projects, you will lose money. A safe buffer is usually 30-32 hours.
Target Profit Margin: A healthy agency typically aims for a net profit margin between 15% and 25%. However, niche consultancies may aim for 40%+.
Why Utilization Rates Matter
The "Billable Weeks per Year" and "Billable Hours per Week" inputs determine your utilization rate. If an employee earns $100,000 but only bills 500 hours a year, your effective cost per hour is massive. Improving utilization (reducing non-billable time) is often more effective for profitability than simply raising prices.
Formula Used
The calculation for the final hourly rate used in this tool is: