Inbound Marketing Strategy

Why Every Business Owner Needs A Billable Rate

Brad Smith
November 1, 2011

Business owners waste a lot of time on low level stuff.

I know how it is. We’re obsessive, anxious, and perfectionists.

So we abuse our one asset (time) to try and build up the other (money).

The problem is that you don’t value your time enough.

If you know how much your time is worth, then you can quickly decide what activities are worth your attenion, and outsource the rest.

So just like a consultant, you need to find out your billable rate.


Entrepreneur salary
Image courtesy of yum9me

How to Find Your Billable Rate

If you already take a structured salary, then finding your billable rate is pretty easy.

But first you need to determine your utilization rate.

Consultants can’t directly bill every single hour of their work day for clients. Things come up. They might have to work on marketing, training, administrative tasks, and other common activities.

So think about a fair utilization rate that makes sense for your workday. For starters, it’s probably only 50% of the hours you work.

Now let’s determine how many hours you will work in a year.

For argument’s sake, let’s assume you stick to 40 hours per week. But you’ll have to allow for sick time, vacation, and holidays. So now you’re looking at 46 weeks instead of 52.

Multiply the number of weeks (46) by the hours per week (40) to determine the total possible hours per year (1840).

Now multiply that by your utilization rate (50%) to arrive at your actual billable hours per year (920).

So what is your annual salary, including benefits and other direct expenses? Or what would you like to make?

Divide that total number by your billable hours per year and you arrive at a healthy billable rate.

Maybe it looks like this ($100,000 / 920) = $108.69 or $110. But remember this is only a break-even price. When you add benefits, expenses, and a growth margin, that number can move up significantly.

Now you know what your actual work time is worth.

That’s your opportunity cost to determine if things are worth your time.

You can now also compare if hiring someone to help you in marketing or administrative tasks is worth it, because you can spend more valuable time on your business.

Paying someone else to help or buying an expensive tool can actually be an investment of your time. If it’s comparable or less than what it would cost you in time, then it makes perfect sense.

And you can get back to what you do best… running your business.