Effective Hourly Rate Calculator
Discover your true earnings by accounting for expenses and unbilled time.
Your Effective Hourly Rate:
$0.00
What is an Effective Hourly Rate?
The Effective Hourly Rate (EHR) is the actual amount of money you earn for every hour you spend working. Unlike your "quoted" billable rate, the EHR accounts for the hidden costs of doing business: business expenses and non-billable time (such as admin, marketing, learning, and prospecting).
If you charge a client $100 per hour but spend two hours on administrative tasks for every one hour of billable work, your effective rate is significantly lower than $100. Understanding this metric is vital for freelancers, contractors, and business owners to ensure they are actually profitable.
How to Calculate Effective Hourly Rate
The formula for calculating your effective hourly rate is:
EHR = (Total Revenue – Business Expenses) / (Billable Hours + Non-Billable Hours)
Example Calculation
Let's look at a realistic scenario for a freelance graphic designer over a one-month period:
| Factor | Value |
|---|---|
| Monthly Gross Revenue | $6,000 |
| Software, Hardware, & Ads | $800 |
| Hours Spent on Client Work | 80 hours |
| Hours Spent on Admin/Emails | 20 hours |
| True Effective Rate | $52.00 / hour |
In this example, while the designer might feel like they are earning a high salary based on revenue, their actual "take-home" value per hour worked is $52.00 after considering all commitments.
Why Knowing Your EHR Matters
- Pricing Accuracy: Helps you realize when you need to raise your rates to cover administrative overhead.
- Efficiency Analysis: If your non-billable hours are too high, it might be time to automate tasks or hire an assistant.
- Tax Preparation: By subtracting expenses first, you get a clearer picture of your taxable income relative to your time investment.