About bill rates

A bill rate is always higher than the worker’s actual pay rate, because it includes overhead costs, legally mandated expenses (like taxes), and a profit margin.

Determine bill rates

When you set your bill rates, consider the following:

• Cost of work: This includes staff salaries and benefits, as well as overhead costs of non-billable people, rent, and other operational expenses.
• Utilization goals: The percentage of work hours that are considered direct labor (project work that clients pay for) as opposed to indirect labor (work that’s considered overhead, or work in between clients’ projects)
  • Utilization differs per organization, but it’s typically 50% – 75%. Higher than 75% may be unhealthy for an organization over a long period of time.
• Profitability goals: The profit margin that the organization aims for. This differs across organizations but is typically in the 15%- 25% range.
• Fully burdened rate: By calculating the true cost per production hour for each team member, you can calculate exactly how much you need to charge per hour for that person to meet your gross profit goals on the projects. 
• Pricing multiplier: You can multiply the hourly rate by the pricing multiplier. A typical pricing multiplier is between three and five. Multipliers vary greatly and depend on your industry. Research what multiplier makes the most sense for your team.

Labor expenses and overhead expenses change over time. Recalculate this rate once or twice a year to ensure it’s current and adjust the bill rates for new projects as needed.

Calculate estimated project costs

Use this bill rate to provide an estimate for your clients. Figure out how much time it would take to complete the work and multiply that by the hourly rate. See an example in Estimate the budget for a new project.

It may be better to share this as a fixed bid and not include the detailed calculations that went into it. Otherwise, you may end up negotiating every hour, rather than the value of the work. Even when project durations are unpredictable, you can still calculate blocks of time with an upper budget limit.

Set up your project budget in Resource Management

Fixed-bid projects

You bid to complete a defined set of work for a certain amount. Your budget is the price you charge the client.

Retainers

The client pays a fee for a set amount of work, but the scope isn’t typically defined up front. There may be a not-to-exceed agreement for the budget. 

The budget depends on how you want to divide the retainer. For example, you could split it into a series of one-month projects or create a year-long project. 

Time and materials

You get paid for actual hours worked. You can leave the budget blank and track incurred fees. You can also enter a target amount or the maximum agreed-upon amount. You might need to adjust bill rates if you've agreed on the allowed markup for worked hours.