Effective Hourly Rate After Nonbillable Work: Compare Your Options

Build the baseline before choosing a fix

Use invoices or earned project fees for the work being measured and a complete time log for that same period. If you use cash received instead, label it a cash-based view; a late-paying client can make one month look weak and the next unusually strong even when delivery was steady.

For a fixed-price project, include research, meetings, production, revisions, and delivery. For the whole business, also include sales, administration, and other necessary work. Do not compare a project-only rate with an all-business rate without labeling the difference.

Worked example: $100 billing does not equal $100 per worked hour

Assume 25 billable hours at $100, 15 other business hours, and $500 of weekly operating expenses.

The $50 result includes compensation for your own work; it is not profit after deducting an owner salary. It is also not after-tax take-home pay.

For US self-employment, income tax and self-employment tax are distinct obligations. Use a separate tax calculation instead of adding statutory rates together and applying them indiscriminately to revenue. IRS self-employed tax center

Compare three possible changes

Keep the baseline's $500 expense amount unless the proposed change affects it.

Each scenario changes a different thing. The first assumes clients accept the price without reducing the sold hours. The second creates time savings rather than more money. The third requires additional demand.

Those assumptions determine whether the improvement can happen. “Automate administration” is not enough information to forecast higher revenue.

Include the cost of saving time

Suppose a service costs an additional $100 per week and saves two admin hours. With unchanged revenue and 38 total worked hours, pretax net per hour becomes ($2,500 − $600) ÷ 38 = $50.00. The original $50 rate is unchanged, although you work two fewer hours and retain $100 less money.

If both freed hours instead become sold work at $100 and total work stays at 40 hours, the measure becomes ($2,700 − $600) ÷ 40 = $52.50.

Include implementation and review time before relying on the savings. A tool that saves time after setup may not pay back in its first month.

Solve for a target using the same measure

To reach a hypothetical $60 pretax net per worked hour while working 40 hours, paying $500 of expenses, and selling 25 hours:

Required billing rate = ($60 × 40 + $500) ÷ 25 = $116.00.

This is a revenue requirement under the inputs. It does not establish a market rate or an after-tax result.

The Billable Hours calculator can check gross utilization and effective rate for a single-rate scenario. Deduct expenses separately. The retained Time to Money tool is a related tradeoff aid; use this article's explicit equations for the earnings comparison.

Review the figures over a period long enough to include your billing cycle. Choose an action based on whether the problem is low realized prices, unpaid extra work, necessary business investment, or costs. A higher percentage alone does not show which problem you have.