Enter the cost of labor per hour and the overhead cost per hour 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 ($)
- PM is the profit margin (decimal)
To calculate the charge out rate, add the cost of labor per hour to the overhead cost per hour. Multiply the result by 1 plus the profit margin. The result is the charge out rate per hour. This rate covers both the direct costs of providing the service (labor and overheads) and the indirect costs associated with running a business (profit margin).
What is a Charge Out Rate?
A charge out rate is the cost rate that a business or professional charges for their services per hour. It is calculated by adding the cost of labor and overheads, then adding a profit margin. This rate is often used by professionals such as lawyers, consultants, or freelancers to bill their clients. It helps to cover not only the direct costs of providing the service, but also the indirect costs associated with running a business.
How to Calculate Charge Out Rate?
The following steps outline how to calculate the Charge Out Rate:
- First, determine the cost of labor per hour ($).
- 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 margin (decimal) = 0.2
