How Agencies Calculate Internal Hourly Rates
February 20, 2019

How Agencies Calculate Internal Hourly Rates

While I don’t recommend ever sharing your hourly rate out to clients (they are paying you for an outcome, not time and doing so runs the risk of teaching clients to price hunt), it’s important that you have an understanding of what your agency internal hourly rate is in order to build out your Service Document and price properly. Here’s a rundown on how agencies calculate internal hourly rates.

Generally speaking, the way you come about this is to use your team’s salary or fees, add overheads, and then use a profit multiplier.

Here’s how it works: 

Step #1: Find the Effective Rate of Your Implementer’s Hourly Rate

Let’s say you have a staff member on a $50,000 salary. Your staff, over the course of a year, we give you 1,600 hours of time (this is the average taking into account leave and sick days). This means, his effective rate is $31.25/hr.

Step #2: Add Overheads 

Now, of course, you and I both know that just because he’s doing the implementation work, doesn’t mean other team members or overheads are not going into the production of servicing the client.

So, on average every $1 of direct expense will carry with it $1.34 of overhead. This means that the hourly cost is $31.24 + $41.86 = $73.06/hr. But of course, you want to make a profit as well.

Step #3: Add a Profit Multiplier

Here’s where you use the multiplier. We use a multiplier of 3, other agencies use a multiplier of 2. I would recommend you stick with 3 to protect yourself.

This means that your internal hourly rate is $73.06 x 3 = $219

Once you understand your internal hourly rate, you can then break down time requirements of client deliverables and cost projects properly.  Some agencies will choose to add a 10-20% buffer to invoices in the situation of projects running over scope. Some choose to charge for this upfront and refund any amount remaining once project is completed.

Whatever approach you use it’s important to understand your own costs – without this it will become difficult to built teams and run a profitable business.

If you’d like to swipe our service document, you can do so here: https://academy.cathowell.com/sd

 

0 Comments

Making peace with the things that go bump in the night

  The perspective shift that helped me to make peace with the things that go bump in the night. Paranormal Activity   I have a confession to make, I am a great big scardey cat.  Even since I was a young girl.  It all started when I used to see my dead aunt...

How to Effortlessy Attract Leads & Clients

There is an alchemy to effortlessly attracting leads and clients into your business. That is counterintuitive to everything they teach you about scaling. It has nothing to do with how pretty your website is, your posting schedule, strategy or even offers. Rather it is...

Like how did I not see it 🙄  #guided #universehasmyback #spiritualmeme #clarity
Something interesting begins to happen when you allow yourself to receive with ease...

You become a ripple

A positive vibration 

To any and all who come into your field 

You trigger people to remember a part of themselves 

That is no thing 

No one 

But everything 

And everyone 

Who does not resist duality

And instead flows in the river, with the river 

Inspiring others to do the same. 

Say it with me: to 👏 give 👏 myself 👏permission 👏 to 👏 receive 👏 is 👏 to 👏 give 👏 everyone 👏 permission 👏 to 👏 do 👏 the 👏 same 

Expansion 

The foundational force of this universe 

For the greatest good of all 

x
Stronger than any mortal connection #moneymagic #dragon