Enter the base salary of an employee, the capacity in hours per year, and a multiplying factor into the calculator to determine a bill rate. Select “next” to calculate the bill rate using profit goals, costs, capacity, and utilization goals.
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Bill Rate Formula
The following formula is used to calculate the bill rate a company should charge for its employees.
BR = S / C * M
- Where BR is the bill rate ($/hr)
- S is the employee salary ($/yr)
- C is the capacity of an employee in terms of billable hours per year (hrs) (Typically 2080 hrs) note that not all hours will be billed
- M is a multiplier – typical >4 to account for overhead and other costs.
To calculate a bill rate, divide the employee salary by the billable capacity per year, then multiply by the overhead multiplier.
The multiplier in this formula is used to reach the profitability goal of the company. The higher the multiplier the higher the profit. The multiplier
Another way to calculate Bill Rate is using the following formula:
BR = C / (CA * U ) + P
- Where C is the total costs ($)
- CA is the capacity in hrs/yr
- U is the utilization of the capacity (%)
- P is the profit per hour goal ($)
Bill Rate Definition
A billing rate is defined as the rate a company will bill a customer per hour in order to meet certain profit goals given their understanding of their costs and capacity utilization.
How to calculate the bill rate?
First, determine the annual base salary of an employee. For this example, we will have an employee making $90,000.00 per year.
Next, determine the total yearly capacity of that employee. Typically 2080 hours is used. Not all hours will be billed for, and this is what the multiplier in the next step is used for.
Next, determine the multiplier to work with in order to cover utilization percentage, costs, and profit goals. For this problem we will use a standard multiplier of 5.
Finally, calculate the bill rate using the formula above.
BR = S / C * M
= ($90,000/2080) * 4
= $173.07 / hour