How to tell if you're charging enough for your time

Let’s talk about something that matters if you are a service provider: your effective hourly rate.

Now, if you work with clients and bill by the hour, you might say - my hourly chargeout rate is $425 per hour.  I know this.  Why should I read on, Tanya?

Well, because I can say with absolute certainty that your effective hourly rate is much lower.

And the reason I want you to know your effective hourly rate is because if you are working 2,000hrs/year but only 500 of those hours are chargeable, your effective hourly rate is actually $106.25.

And how does that feel?

If it feels not-so-great, it’s possible that you’re leaving money on the table by not focusing as much of your time on client work (aka increasing your chargeable hours) OR you’re just not charging as much as you should. 

And knowing your effective hourly rate is just one more piece of data to help you when you are reviewing the chargeout rates for yourself and your team this year to ensure you’re keeping up with rates in your industry and INFLATION.  

There’s obvi so much more to your rates - I’m going to dive deep into realization and utilization rates later this month - but for today, let’s go through how to calculate your very own effectively hourly rate.

Here’s how ✅✅

First, I need you to gather some info:

• (A) = Your current chargeout rate (this is the rate you’d put in your services agreement or scope of work doc or commission agreement; if you’re doing fixed fee stuff, take that total fee quoted divided by the estimated number of hours to complete the project and that will be your chargeout rate)

• (B) = The total number of hours you worked last year (typically between 1,800 - 2,200 if you’re full time in your biz)

• (C) = Your total chargeable hours from last year (aka the total number of hours you worked on client tasks between Jan 1, 2023 and Dec 31, 2023.)  If you don’t have a year’s worth of info, you can use a week or a month or just guess.  All we’re doing is creating a starting point here and you'll ideally re-do this calc each month or quarter.

Next, get out that iPhone calculator app - we’re getting real math-y today.  

Here’s your formula to calculate your effective hourly rate:

C x A = total rev you generated last year (D)

D / B = your effective hourly rate

Quick example:

A = your current chargeout rate = $425

B = hours worked last year = 2,000 hrs

C = total chargeable hours last year = 500 hrs

C x A = 500hrs x $425 = $212,500 total rev generated last year (= D)

D / B = $212,500 / 2,000hrs = $106.25 effective hourly rate 

So, if your effective hourly chargeout rate seems a bit low, you might want to consider looking at a few things:

• Increasing your chargeout rate (but make sure you do some muscle testing and market research first)

• Improving the proportion of chargeable versus non-chargeable hours worked (aka your utilization rate)

• Taking a closer look at how many chargeable hours are actually getting billed to your clients (aka your realization rate)

That’s what I have for you today, friend.  

I have clients inside of 7-Fig CEO who I’m doing a deep dive with on this stuff right now and I can tell you that it is wildly illuminating aka we are making some changes that I am confident will help this client get much closer to $2.5M in revenue THIS YEAR.  That will be a 32% increase year over year.

If you want to see results like this in your biz, I’d love to chat.  

Me and my team love helping motivated entrepreneurs create big changes so their bottom line actually starts reflecting the effort they put into their biz.

Take care and talk soon,

Tanya