OneTaskBy Tim King · Updated
Charge Out Rate Calculator
Salary Multiplier Billing Rate for Employees, With On-Costs and Overheads
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How the Charge-Out Rate Calculator works
This charge out rate calculator turns an employment cost into an hourly rate. Enter what a person costs to employ, the overhead they carry, how many of their hours you can actually bill and the margin you want, and the readout gives the hourly and daily charge-out rate, the break-even rate below which the person loses money, and the multiplier that rate represents on their salary. The table shows how the required rate moves as utilisation changes, which is usually the number that decides whether the year is profitable.
Charge out rate calculator: from salary to rate
A charge-out rate is what a professional services firm bills a client for one hour of one person's time. The mistake that sinks small consultancies, agencies and engineering practices is to set it from the salary alone: divide £45,000 by 1,950 hours, get £23, double it and call it £50. The real calculation has four steps and each one roughly doubles the number.
Employment cost. Salary is the start. Employer National Insurance, pension contributions, benefits, insurance and training add 15% to 30% on top, so a £45,000 salary is £54,000 employed at 20% on-costs. That is the on-costs box.
Overhead share. Rent, software, equipment, management, admin staff, marketing and finance costs have to be recovered through billable people because nobody else generates revenue. Divide total overhead by the number of fee-earners and enter that person's share. A one-person business puts the whole overhead here. The overhead rate calculator works this out from the annual total.
Billable hours. A 37.5-hour week over 52 weeks is 1,950 hours, but nobody bills 1,950. Holiday, bank holidays, sickness and training take it to about 44 working weeks, or 1,650 hours available. Then utilisation: the share of those hours that is chargeable to a client rather than spent on sales, proposals, internal meetings, admin and unbillable rework. Typical figures are 70% to 80% for delivery staff, 50% to 60% for senior people who also sell and manage, and rarely above 85% for anyone. At 70% the 1,650 hours become 1,155 billable hours, and the whole £69,000 cost has to be recovered across them: £59.74 an hour just to break even.
Margin. Profit is applied to the rate, not the cost, so a 20% margin means the rate is cost divided by 0.8, not cost times 1.2. At 20% the break-even £59.74 becomes £74.68, roughly £560 a day. Note that 20% margin on the rate is not 20% profit for the firm; it is profit before tax on the fee-earner's own revenue, and it is what funds bad debts, unbilled overruns, quiet months and growth.
Salary multiplier. Firms commonly sanity-check rates as a multiple of salary: charge-out revenue at target utilisation divided by salary. Lean engineering and architecture practices run around 2 to 2.5, consultancies and agencies 2.5 to 3.5, and law firms higher. The rate as a multiple of the hourly salary is a second check: the £74.68 above is 2.7 times the £27.27 hourly salary. If your multiplier is under 2, either overheads are very low or the rate is too low.
Using the table. Utilisation is the lever most within reach. The rows show that the same person needs £104 an hour at 50% utilisation and £58 at 90%, so a practice that fixes its rates at 70% and then achieves 55% is losing money on every hour it sells at those rates. Set rates from the utilisation you will actually achieve, not the one in the business plan.
Charge out rate table by salary
Every row uses 20% on-costs, £15,000 of overhead, 37.5 hours over 44 weeks, 70% utilisation and a 20% margin.
Hourly charge-out rate and break-even rate by salary
| Salary | Charge-out rate per hour | Per day (7.5 h) | Break-even rate |
|---|---|---|---|
| £25,000 | £48.70 | £365.26 | £38.96 |
| £29,000 | £53.90 | £404.22 | £43.12 |
| £33,000 | £59.09 | £443.18 | £47.27 |
| £37,000 | £64.29 | £482.14 | £51.43 |
| £41,000 | £69.48 | £521.10 | £55.58 |
| £45,000 | £74.68 | £560.06 | £59.74 |
| £49,000 | £79.87 | £599.03 | £63.90 |
| £53,000 | £85.06 | £637.99 | £68.05 |
| £57,000 | £90.26 | £676.95 | £72.21 |
| £61,000 | £95.45 | £715.91 | £76.36 |
| £65,000 | £100.65 | £754.87 | £80.52 |
| £69,000 | £105.84 | £793.83 | £84.68 |
| £73,000 | £111.04 | £832.79 | £88.83 |
| £77,000 | £116.23 | £871.75 | £92.99 |
| £81,000 | £121.43 | £910.71 | £97.14 |
| £85,000 | £126.62 | £949.68 | £101.30 |
| £89,000 | £131.82 | £988.64 | £105.45 |
| £93,000 | £137.01 | £1,027.60 | £109.61 |
| £97,000 | £142.21 | £1,066.56 | £113.77 |
| £101,000 | £147.40 | £1,105.52 | £117.92 |
| £105,000 | £152.60 | £1,144.48 | £122.08 |
| £109,000 | £157.79 | £1,183.44 | £126.23 |
| £113,000 | £162.99 | £1,222.40 | £130.39 |
| £117,000 | £168.18 | £1,261.36 | £134.55 |
Charge-out rate formula and worked examples
The formula: break-even rate = (employment cost + overhead share) ÷ billable hours. Charge-out rate = break-even rate ÷ (1 − margin). The multiplier is the charge-out rate ÷ (salary ÷ paid hours).
First example. a designer costs £52,000 to employ, carries £20,000 of overhead and bills 1,200 hours a year. Break-even is 72,000 ÷ 1,200 = £60 an hour, and a 25% margin needs 60 ÷ 0.75 = £80 an hour, or £600 for a 7.5-hour day.
Second example. if utilisation drops so only 1,000 hours are billable, break-even rises to £72 and the 25% margin rate to £96. A 17% fall in billable hours puts a 20% rise on the rate you need.
How many times salary should you charge? Agencies often use a multiplier of 2.5–3.5× the hourly salary; this calculator shows the multiplier your own costs actually imply.
FAQ
What is the charge-out rate formula?
Charge-out rate = (salary + on-costs + overhead share) ÷ (available hours × utilisation) ÷ (1 − target margin). The first bracket is the fully loaded annual cost, the second is billable hours, and dividing by one minus the margin applies the profit to the rate.
What multiple of salary should I charge?
Between 2 and 3.5 times salary in annual charge-out revenue is normal for professional services, and about 2.5 to 3.5 times the hourly salary for the rate itself. Lower than that and overheads are probably not being recovered; the calculator shows both multiples for your figures.
What utilisation should I assume?
Whatever the person has actually achieved over the last year, not the target. If you have no history, use 70% for full-time delivery staff and 55% for anyone who also sells, manages or runs the business. Utilisation of 100% is impossible and using it will set a rate that loses money.
Should the charge-out rate include profit?
Yes. Cost recovery on its own leaves nothing for bad debts, unbilled time, downtime between projects or investment. A margin of 15% to 25% on the rate is typical, applied by dividing the break-even rate by one minus the margin rather than multiplying, because margin is a share of the price.
How do I get a day rate from this?
The calculator multiplies the hourly rate by 7.5. If your billable day is 8 hours, multiply the hourly figure yourself, and remember that a day rate should reflect the hours actually delivered in a day rather than the hours the person is at their desk.
See also: all Rates & Pricing tools, Profit & Growth, Invoicing & Payments.
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