Are you aware of the billing rate within your company and have you communicated clear expectations to your employees regarding what it should be? The billing rate is an important indicator for measuring resource utilisation and can be used both at the individual level and company level. But how do you calculate the billing rate? There are several methods, which we will teach you in this article. The billing rate is a key indicator that shows what proportion of employees' working hours are spent on billable client work. It is measured in percentage and can be used at the company level, departmental level, and individual level. Billing rate is an important KPI when you need to measure the resource utilisation of the business: A high billing rate indicates that a large portion of resources is used on income-generating work, whilst a low billing rate suggests that time is spent on non-productive activities. Taking steps to improve the billing rate will usually result in increased profitability for your business. There are several levels you can choose from when calculating the billing rate. Which method you should choose depends on the goals and needs of your business, and how much data you have available. Some methods, for example, rely on being able to gather data on holidays and other absences. Consider the purpose of monitoring the billing rate, and choose a method accordingly. Purposes can include: What's most important when measuring billing rate is that everyone in the business has a common understanding of the chosen calculation method. Otherwise, you risk measuring different things and getting different results. If you want a quick overview of the billing rate in your company, the calculation can be quite simple. This is a direct method to assess efficiency. It gives you immediate insight into what proportion of working hours contribute to direct income. This method is the simplest, but also the least accurate, and does not account for holidays or other absences. This method considers the number of working hours employees are contractually obliged to over a year and is therefore more accurate for calculating the billing rate in the business. From a managerial or executive standpoint, this method is recommended as it is directly correlated with the financial aspects of the company. While Method 2 only has an economic perspective, Method 3 takes into account absences that employees often cannot control themselves. First, determine the number of agreed work hours in the company, and then deduct holidays and absence time. Lastly, take the number of billable hours and divide it by the figure you obtained. A final method for calculating the billing rate takes into account certain categories of internal time in the business (non-billable time). This is a method you use if you want to incentivise certain types of internal time among employees. For instance sales meetings or professional development. Such activity takes work away from directly income-generating work, but in certain cases, you might want to prioritise internal projects. Add the desired internal time to the billable hours in the calculation. To measure this billing rate, take the number of billable hours in the company, and add the desired amount of internal time. Then take the figure for agreed hours and deduct holidays and absence time. Finally, divide the first number by the last number. Calculating the billing rate provides useful insight into how time is used in the company. A poor billing rate can reveal unnecessary use of non-billable time. What tasks are the employees involved in during the hours that are not directly generating income? A low billing rate may suggest that there isn't enough work to keep employees busy. In such cases, it's important to consider what actions need to be taken: Should the company focus on increasing sales or maybe consider reducing staff? A low billing rate can also indicate poor planning. Employees might be allocated to projects that do not align with their skills or expertise, resulting in wasted time and resources. Excessive downtime or lengthy commutes can also contribute to a poor billing rate. It is crucial to validate the figures against the organisation and understand why they are as they are. Are the figures indicating a low level of billable hours or are there potential registration errors? Engage in conversations with employees to clarify whether they have a clear understanding of how to accurately register their time. Implement a comprehensive timekeeping policythat clearly outlines the process for registering time and identifying billable work. This will help ensure accurate measurements and provide clarity on what activities can be billed. When selecting a method to calculate the billing rate, it is crucial to take into account the objectives and requirements of your business. Don't hesitate to explore multiple methods. Choose the methods that align with your specific goals for the calculation. Make sure that everyone involved in the business has a common understanding of the calculation method you have chosen so that everyone is aware of what is being measured. Remember that the billing rate is only part of the equation and that you also need to have control over project finances to ensure efficient economic operation. Feel free to download our guide to project profitability to learn even more about this.First and foremost: Understanding the billing rate
Which method of calculating the billing rate is best for you?
Method 1: The simplest way to calculate the billing rate
Find the number of billable hours and divide it by the total number of hours worked in the company.Method 2: Taking agreed working hours into account
Find the number of agreed working hours, which is the total number of hours the employees are collectively supposed to work over the year. Deduct holidays. Then take the number of billable hours and divide it by that figure.Method 3: The fairest approach
Method 4: Encouraging specific non-billable activities
What valuable insights can we gain from the billing rate?
Conclusion and further thoughts
FAQs
How to calculate your billing rate? ›
To measure this billing rate, take the number of billable hours in the company, and add the desired amount of internal time. Then take the figure for agreed hours and deduct holidays and absence time. Finally, divide the first number by the last number.
How to calculate CPA billing rate? ›So an average bill rate is technically, the definition is, taking your total revenue and dividing it by the number of billable hours. So it's a very simple calculation. Everybody can do it if you've got a good time and billing software that you can just look at your total billable hours for a period.
How to calculate billable hours per employee? ›Calculating billable hours is straightforward: you take how much you've worked and multiply it by your hourly rate. But, the complications arise when you charge different fees to different clients, or when you have a diverse team doing differently paid work, and you need to factor in all those different rates.
What is effective billing rate? ›The effective bill rate is calculated by dividing the total revenue generated from a project by the total number of hours worked on it. The total number of hours worked should include both the billable and non-billable hours.
What are billing rates? ›Bill Rate Definition: the amount a company or professional charges per hour of work. Bill rate is the amount independent professionals charge clients. It includes any money needed to cover taxes, fees, and any discounts you offer.
How to calculate billing percentage? ›Billable utilization measures the percentage of available hours that employees spend generating revenue for project-based services. The utilization rate formula is defined as: Billable Utilization % = (Number of Billable Hours / Number of Available Hours) X 100%.
What is CPA formula? ›How To Calculate CPA. To calculate Cost per Acquisition, add up all the costs directly linked to gaining a new customer–advertising, sales, marketing software, and even trade show participation. Then, divide this by the total number of acquisitions.
What is CPA calculator? ›Measure the success of your campaign easily with Publift's cost per acquisition calculator. Our CPA calculator helps you to easily estimate the cost to acquire new customers from specific campaigns.
How do you calculate a good CPA? ›The CPA calculation is calculated by dividing your total costs (marketing costs) spent by the number of new customers in the same time period.
How to calculate cost rate? ›Once you've identified your employee categories, pay scales, and the additional overhead for each type of employee, you can now calculate their cost rate. Simply add all of these ancillary costs for a year to their annual salary, and then divide the sum by the amount of working hours at your company.
What is the difference between cost rate and bill rate? ›
Pay rates and cost rates represent expenses to your business. Billable rates, on the other hand, represent potential income. These rates are all manageable. How you manage them (job costing) depends on your business plan and customers.
How to calculate hourly rate? ›First, determine the total number of hours worked by multiplying the hours per week by the number of weeks in a year (52). Next, divide this number from the annual salary. For example, if an employee has a salary of $50,000 and works 40 hours per week, the hourly rate is $50,000/2,080 (40 x 52) = $24.04.
How to calculate billing rate? ›- Determine your annual salary.
- Estimate the capacity of your employees.
- Estimate the multiplier.
- Apply the bill rate formula: bill rate = (annual salary / capacity) × multiplier.
To ensure smooth billing processes and identify areas for improvement, Billing Operations Analysts rely on key performance indicators (KPIs) and analytics. These metrics and analytical tools enable them to assess the performance of billing operations, identify trends, and make data-driven decisions.
What is billing metrics? ›Billing metrics is a set of techniques and strategies that measure, analyze, and optimize the billing process. Companies use it to maximize revenue, reduce costs, and improve customer satisfaction. It also helps them identify trends, opportunities, and potential revenue leakage.
How do you calculate total billed cost? ›The formula for finding this is simply fixed costs + variable costs = total cost. Using the examples of fixed costs and variable costs given above, we would calculate our total cost as follows: $2210 (fixed costs) + $700 (variable costs) = $2910 (total cost).
How do you calculate billing units? ›Billing units are based on a 6-minute interval time unit to ensure that your rate is applied appropriately on an hourly basis. For example, if you work for 12 minutes, the billing unit would display . 2 on the timer.
What is the billing rate of a contract? ›This is usually thought of as an hourly or a weekly rate. Your bill rate should cover the contract worker's wage (hourly pay rate), taxes and insurance, administrative expenses, and leave room for a decent profit margin for your staffing firm.