Hourly bill rates: rules of thumb
I’m often asked, “How much should I bill clients relative to what I pay employees and independent contractors (aka subcontractors or subs)?”
A few rules of thumb:
- Charge clients as much as the market will bear relative to your positioning (e.g. are you a boutique high-end consultant are or you selling commodity software programming hours?).
- Pay as little as you can without losing people to competitors.
- For employees, charge clients 3.0x – 4.0x the base wage you pay out. So if someone earns $80,000 per year, you’re paying $38 per hour ($80,000 divided by 2,080 hours per year). 3x = $115/hour bill rate. 4x = $153/hour bill rate.
- For subs, 2.0x – 3.0x their hourly rate if you can get it. So if you pay a sub $75 per hour, charge the client at least $150 per hour.
A topic for another day is whether to quote and bill clients by hour, by day, or by project. But no matter the presentation to the client, the behind-the-scenes mechanics of what you’re getting paid per hour vs. what you’re paying out per hour for your most expensive resource (labor) are still the same.
Knowing this logic will also help you price jobs that have non-labor profit sources such as markup on materials.
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