Setting your hourly rate is one of the most important — and most guessed — decisions in a consultancy, agency or freelance business. Too low and you work hard for nothing; too high without the value to back it and you lose deals. Here’s a straightforward way to calculate a rate that covers your costs, and how to manage different rates for different clients and people once you’ve decided.
Step 1: Know your real cost per hour
Start with what one hour of each person actually costs the company:
Cost per hour = (annual salary + taxes + benefits + share of overheads) ÷ productive hours per year
Productive hours are far fewer than paid hours. After holidays, sick days, internal meetings, sales and admin, most people deliver somewhere between 1,100 and 1,500 billable hours a year — often less. Use your own numbers: if you already track time, your reports tell you exactly how many billable hours each person logged last year.
In Clocknico this figure is the employee’s cost rate, set by an admin on the Team page. It’s what the Profitability page uses to calculate labour cost.
Step 2: Add your target margin
Your hourly rate must cover the cost and leave a profit. A common starting point for service businesses is a rate of two to three times the cost per hour. That might sound high, but it has to pay for unbilled work, slow months, tools, and growth.
Step 3: Check the market — and your value
Look at what comparable firms charge, then adjust for what makes you different: specialist expertise, speed, reliability, industry knowledge. Price on the value you deliver, not only on cost. The formula gives you the floor; the market and your value give you the ceiling.
Step 4: Decide between one rate or many
Most companies end up with a mix:
- Client rates — one negotiated rate for all work for a client;
- Project rates — a different rate for a specific project, for example a specialised one;
- Employee rates — seniors billed higher than juniors.
Clocknico supports all three. For each client you choose whether the rate comes from the client (with project overrides) or from the employee who did the work. The app then picks the right rate for every time entry automatically — in reports and on invoices alike.
Step 5: Consider other billing models
Hourly isn’t always the best fit. Fixed prices reward efficiency; retainers give predictable income. Read our comparison of hourly, fixed-price and retainer billing.
Step 6: Review your rates every year
Costs rise every year; rates often don’t. Once a year, open your profitability report by client. Clients with consistently low margins are the first candidates for a rate increase — or a conversation about scope.
Quick example
| Value | |
|---|---|
| Annual cost of an employee (salary, taxes, overhead share) | €48,000 |
| Billable hours per year | 1,200 |
| Cost per hour | €40 |
| Rate at 2.5× cost | €100 / hour |
The numbers are illustrative — plug in your own. The point is to know your cost per hour before you quote, and to see afterwards whether the rate held up.
Clocknico keeps rates, tracked hours, invoices and profitability in one place, and it’s free for teams of up to 5 users.