Charge Out Rate Calculator - Calculator Academy

Reviewed By: Scott Hickam (MBA, Finance)

Enter the cost of labor per hour, the overhead cost per hour, and the profit markup (as a decimal) into the calculator to determine the charge out rate per hour.

Charge Out Rate Formula

The following formula is used to calculate the charge out rate per hour.

CR = (L + O) * (1 + PM)

Variables:

CR is the charge out rate per hour ($)
L is the cost of labor per hour ($)
O is the overhead cost per hour ($)
PM is the profit markup on cost (decimal)

To calculate the charge out rate, add the cost of labor per hour to the overhead cost per hour. Multiply the result by 1 plus the profit markup. The result is the charge out rate per hour. This rate covers your costs (labor and overhead) and includes the desired profit on top of those costs.

Note: In this calculator, “PM” is a markup on cost (profit ÷ (L + O)). If instead you mean profit margin as a percent of the final price (profit ÷ CR), the relationship is CR = (L + O) / (1 − PM).

What is a Charge Out Rate?

A charge out rate is the hourly rate that a business or professional charges for their services. It is commonly calculated by adding the cost of labor and overhead, then applying a profit markup. This rate is often used by professionals such as lawyers, consultants, or freelancers to bill their clients. It helps to cover the costs of providing the service and to earn a profit.

How to Calculate Charge Out Rate?

The following steps outline how to calculate the Charge Out Rate:

First, determine the cost of labor per hour ($).
Next, determine the overhead cost per hour ($).
Next, gather the formula from above = CR = (L + O) * (1 + PM).
Finally, calculate the Charge Out Rate.
After inserting the variables and calculating the result, check your answer with the calculator above.

Example Problem:

Use the following variables as an example problem to test your knowledge.

cost of labor per hour ($) = 20

overhead cost per hour ($) = 10

profit markup (decimal) = 0.2