Bill Rate Calculator

Created by Wei Bin Loo
Reviewed by Dominik Czernia, PhD candidate and Steven Wooding
Last updated: Jul 25, 2022

With this bill rate calculator, you can easily calculate the bill rate you should charge your clients based on your employee's salary. It will allow you to understand how much you need to charge your clients in order to reach your profit goals.

This article will help you understand what billing rate is and how to calculate the bill rate. We will also show you its application by demonstrating some examples.

What is billing rate?

The billing rate is the amount of money per hour that you need to charge your clients. This number is essentially the price of your service.

A couple of factors such as the salary you are paying your employees, their billable hours, and overhead costs are essential when it comes to the bill rate calculation. We will look at them in the next section.

How to calculate hourly billing rate

Now that you have understood what the billing rate is, now let's look at how to calculate the hourly billing rate. To help you understand the estimation of the billing rate, let's take Candy, an employee of Alpha Group, as an example:

  • Name: Candy
  • Annual salary: $90,000
  • Capacity: 2,080 hours per year
  • Multiplier: 4

You can calculate the bill rate in four steps:

  1. Determine your annual salary

    The first step is to know your employee's annual salary. In this example, Candy's annual salary is $90,000.

  2. Estimate the capacity of your employees

    Next, you will need to understand the capacity of your employees. Capacity is the number of hours your employees can work in a given year. For Candy, her capacity is 2,080 hours per year.

  3. Estimate the multiplier

    Now, you will need to estimate the multiplier for your business. The multiplier is in place to ensure that your bill rate is enough to cover the overheads and other costs of your business so that you can hit your profit target.

    Most of the time, a multiplier of 4 is enough to serve the purpose. If you think your business has a higher cost structure, you might want to go higher. Otherwise, you might be able to go lower to attract more clients by charging a lower bill rate.

    For Alpha group, its multiplier is 4.

  4. Apply the bill rate formula:

    The last step is to calculate the bill rate using the formula below:

    bill rate = (annual salary / capacity) × multiplier

    Hence, the bill rate Alpha Group should charge it clients for Candy's services is ($90,000 / 2,080) × 4 = $173.08 per hour.

If you want to avoid the above steps, use our billing rate vs. salary calculator to find the bill rate from the annual salary in no time.

The importance of understanding the bill rate calculation

Understanding the bill rate calculation is vital for every business. This is because, in order to have a profitable business, you need to understand how much money you need to charge your clients. This is especially true when you need to take into account the salary that you are paying your employees and other costs required to run the business.

FAQ

Can the billing rate be negative?

No, the billing rate cannot be negative. A negative billing rate would mean you are paying your clients while providing services to them, which does not make sense.

How can I calculate the bill rate?

You can calculate the bill rate in four steps:

  1. Determine your annual salary.

  2. Estimate the capacity of your employees.

  3. Estimate the multiplier.

  4. Apply the bill rate formula:

    bill rate = (annual salary / capacity) × multiplier

What is capacity in calculating bill rate?

Capacity is the amount of hours your employees are able to work in a certain period of time. Usually, you need to estimate the capacity for the whole year.

What is annual salary?

Annual salary is the amount of money you obtain from your employment in a year. You can calculate it by multiplying the average monthly salary by twelve.

Wei Bin Loo
Annual salary
$
Capacity
hrs
/year
Multiplier
Bill rate
per h
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