How to Calculate Your True Hourly Rate
If you bill $100 an hour, your real hourly rate is probably about $30.
Not because you are doing anything wrong. Because half your week is not billable, because expenses come out, and because nobody withheld your tax.
Most women running a service business know their billed rate to the dollar and have never worked out the other one. The other one is the number that decides whether the year worked.
The Money Mastery System dashboard showing a month's income against the hours behind it. Example data.
The short version
Your real rate is roughly your billed rate × your billable share × 0.6.
At $100 an hour with half your week billable, that is about $30.
Billable share is the figure most people overestimate.
A price rise is the only lever that costs you no hours.
Your real rate, at a glance
Find your billed rate down the side and the share of your working week that is actually billable across the top.
You bill | 40% billable | 50% billable | 60% billable | 70% billable |
|---|---|---|---|---|
$50 an hour | $12 | $15 | $18 | $21 |
$75 an hour | $18 | $22.50 | $27 | $31.50 |
$100 an hour | $24 | $30 | $36 | $42 |
$150 an hour | $36 | $45 | $54 | $63 |
Most solo service businesses land between 40% and 60% billable. The admin, the quoting, the rescheduling, the ordering, the invoice chasing and the part where you actually run the business all happen in the other half, and none of it bills.
How this is worked out, in three lines
Take your billed rate and multiply it by the share of your working hours that are billable. That is your gross per hour actually worked.
Take off business expenses, which run about 20% of revenue for a typical service business.
Take off a 25% tax set-aside, because nobody is withholding it for you.
Which comes to: your real rate is roughly your billed rate × your billable share × 0.6.
Use your own expense percentage and your own set-aside if you know them. If you do not know them yet, that is the more useful finding of the two.
What this number is for
Three things, and none of them is feeling bad.
Pricing. A 10% rise in your billed rate raises your real rate by 10% and costs you nothing in hours. Nothing else on this list is that efficient.
Deciding what to stop doing. Work out the real rate on each type of job you take. The spread is usually wider than anyone expects, and the lowest one is frequently the one you are most loyal to.
Hiring. You cannot sensibly pay somebody to take an hour off you until you know what that hour is worth. If your real rate is $30 and somebody will do your admin for $22, that is a decision rather than a luxury.
The categorization screen showing a month sorted, with income by source. Example data.
The number most people get wrong
Billable share, and almost always upward.
Track one ordinary week honestly. Not a busy one, not a quiet one. Write down the hours you worked and the hours you invoiced for. Most people are five to ten points below where they guessed, and the gap is nearly always admin that grew quietly.
That single week of tracking is worth more than any rate calculator, because it is the only figure in this post that is genuinely yours.
A worked example, start to finish
Take someone who bills $90 an hour and works a 40 hour week, of which 20 hours are billable.
Gross per hour worked is $90 × 0.5, which is $45. After expenses at 20%, that is $36. After a 25% set-aside, it is $27. Over the week that is $1,080 of take-home from $1,800 billed.
Now move one lever at a time. Raise the rate to $100 and the real rate becomes $30. Keep the rate at $90 and lift billable hours from 20 to 24, and it becomes $32.40. Keep both and cut expenses from 20% to 15%, and it becomes $28.69.
Three changes, three different sizes of result. Only one of them, the price, asks nothing more of your week.
Work out yours free
The billed rate you know. The expense percentage and the set-aside are the two you have to get from your own numbers, and that is the part La Soglia, the free membership of the Money Mastery System, is for. Everything you own and owe in one place, personal and business together, with no bank connection and no card.
When you want expenses sorted without doing it by hand, that is the paid membership, and Clarity remembers how you sorted something last time.
Bring it to the Collective
Real hourly rates are the single most useful thing members compare, and almost nobody will post theirs anywhere else. The Money Mastery Collective has a discussion feed open on the free membership.
Questions we hear
Should I include holiday and sick days?
If you want an annual figure, yes, and it lowers the number again. For deciding about pricing and hiring, the weekly version above is enough.
What if my billable share is really 80%?
Then your real rate is higher and you are unusual. Track a week before you believe it, because 80% sustained is rare in a business somebody runs alone.
Does this work for product businesses?
Partly. Replace the billable share with the hours that produce sellable work, and use your own gross margin instead of the 20% expense figure.
Is 25% the right set-aside?
It is a starting point. Our post on setting your tax set-aside percentage works out how to set your own.
How often should I recalculate it?
Once a quarter is enough, and any time you change your prices or take on a different kind of work.
Is a low real rate a sign I am underpricing?
Not always. It can also mean too many unbillable hours. Check your billable share before you change the price, because the fix is different.
Start free with La Soglia
La Soglia is the free membership of the Money Mastery System. It gives you the Net Worth Tracker, where everything you own and everything you owe sits in one place, and the Money Mastery Collective. There is no card to enter and no bank connection.
Keep in touch
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A note on what this is
This article is educational. The Money Mastery System is an educational tool, not financial software, and nothing here is legal, tax, investment or financial advice. The rates above are worked examples from the assumptions stated, not a statement about your business. For guidance on your own circumstances, please speak with a qualified professional who knows them.
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