Does Your Business Charges
Right Hourly Rate?
1. Identify Direct Costs
First of all, identify the cost items that your business incurs throughout the year directly when providing services. Example: employee billable hours, supplies, or travel costs. These costs can be traced directly to any given project provided to a client. In essence, these are direct costs of providing service to your clients.
2. Sum-up Overhead Costs
Second of all, identify your indirect costs that your business incurs throughout the year as a result of its operations. These costs cannot be traced directly to any given project provided to a client. Instead, they are allocated based on percentage or allocation driver. Example: banking fees, office rental costs, office supplies. These costs are necessary for operating your business, but are not directly traceable to any given project provided to your clients.
3. Remember Your Profits
Business is meant to generate profits on a long-run. Determine the profit that your business should generate during a year.
4. Identify Total Hours Billed
Lastly, calculate total hours your business billed clients throughout the year.
Finally, to obtain your business hourly billing rate, add Direct Costs, Overhead Costs, and Profit together, and divide this sum by Total Hours Billed.
This will give you hourly rate you should charge to cover direct costs, overhead costs, and leave business with desired profits.
Keep in mind, that throughout the year demand on for your business service may change, which in turn would impact the bottom line.
Have additional questions or need consultation?
Contact Alexandre Comptabilité Spécialisé Ltée for more information at (613) 882-8404 or firstname.lastname@example.org