A charge out rate is the rate you must charge a client for an hour of your labor. It takes into account your annual salary, direct and indirect cost as well as your profit margin.
How To Determine Your Charge Out Rate
What is Your Required Charge Out Rate
What is the definition of Charge Out Rate. Though you may find slight variations, our charge out rate definition, generally speaking, is your chargeout rate, either for yourself or people in your company, and is how much you have to charge a customer for your billable hours and services to cover their cost, including direct and indirect, and make your required profit margin.
Your customer will usually understand this term to simply mean your hourly rate to them. However, it will not typically include any non chargeable hours although we highly recommend that you provide details of such hours provided to your customer on your invoices. It will dramatically improve your perceived customer experience.
What Does Charge Out Mean?
From the consultant's point of view, it is your billing rate to your customer. It is what your invoices to the customer will be based on. From the customer's point of view, it is the rate you use to bill them.
Billing Rate vs Pay Rate
The charge out rate definition was given above, but to repeat and clarify, it is what you will have to charge your client to cover what you pay yourself or employees, while covering your direct and indirect cost and your profit margin.
Pay rate is what you pay yourself or employees (or sub-contractors). This is very different than your billing rate.
You should always know whether you're charging enough and even be willing to share it with a customer. If you pay out annual bonus' based on performance, provide paid sick leave or other non-billable hours, you also need to be charging enough to cover those as well. For many government contracts, this is standard operating procedure. What other questions can you answer with this? One we get is:
How to Calculate Charge Out Rates for Accountants?
Perhaps you've been asked "how to calculate charge out rates for accountants"? Using our charge out rate, meaning as per our charge out definition given above, we've developed a free, interactive online hourly charge out rate calculator to answer the question, not just for accountants but for basically everybody.
Can I use this as a Consulting Rate Calculator?
Yes, you can. While many consultants charge by the project or value delivered, or some combination thereof, many others charge by the hour and need a consulting rate calculator. We've used this to calculate:
- ERP consulting rates
- SAP consulting rates
- SAP BW consulting rates
- Hubspot Marketing Consultant consulting rates
- Inbound Lead Generation consulting services rates
- Business Intelligence consulting rates
- Sales consulting rates
- Project Management consulting rates
- Project Manager consulting rates
- Software Engineering consulting rates
- Excel consulting rates
- Adwords consulting rates
- Independent consulting rates
- IOS consulting rates
- Android consulting rates
- Ecommerce consulting rates
- Software consulting rates
- Management consulting rates
- Supply Chain consultant consulting rates
- Human Resources consulting rates
- Engineering consulting rates
- Computer consulting rates
Combine Hourly Consulting Rate with Value Delivered
Many consulting companies and individual business consultants combine both their fully loaded cost rate and value delivered factor to come up with a blended rate that reflects more fully the true value they have delivered. For our sales and marketing clients, this is a very popular approach as it ensures all parties have 'skin in the game' because their interest are aligned around achieving profitable outcomes.
Charge Out Rate Calculator
We've developed this Charge out rate calculator based on the charge out rate formula given above.
What Are The Benefits Of Using This Charge Out Rate Calculator
- Ensures Your Charge Out Rate Is a Profit First Calculation
- You Can Run It as Often as Needed
- You Can Play 'What If' Analysis With It
- You can benchmark your charge out rates against the current market rates for similar skillsets down to a per hour level
- You can estimate the cost per year of your planned number of hours of personnel expenditures.
- Keep planned operating expenses at target levels
- Provides valuable input when developing your annual business plan
Determine Your Break-Even Point
More About the Charge Out Rate
A billing rate is what you use to determine the invoice amount you will submit to your customer for payment. A pay rate is what you pay someone, including yourself.
When you run a small or even one man corporation, you need to convert what you're paying yourself into a salary. Let's say you 'pay yourself' $120,00.00 a year. As a business you have to take into consideration all of your cost, in order to arrive at a feasible chargeout rate. Otherwise, you won't ever make a profit.