How to calculate your ideal billable rate
Setting the right billable rate ensures your services remain profitable after covering internal costs. It's not just about picking a number that sounds good—it's a mathematical relationship between your cost to deliver the service and the profit margin you need to sustain and grow your business.
The Billable Rate Formula
A common mistake is using a simple markup formula to calculate rates. If your cost is $50 and you want a 40% margin, adding 40% to $50 gives you $70. But a $20 profit on $70 revenue is only a 28.5% margin.
The correct formula for target margin is:
Billable Rate = Internal Cost ÷ (1 - Target Margin %)
Markup vs. Margin
While margin is the percentage of your selling price that is profit, markup is the percentage you add to your cost. In our calculator above, you can see how a 40% margin requires a much higher markup percentage (66.7%).
Whether you use hourly billing or flat fees, tracking time is essential. TrueClock calculates project profitability automatically, letting you set specific cost and billable rates for every employee to see real margins as work is delivered.