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Super simple way to calculate a bill rate in under 10 minutes

I’ve been provided a few different ways to calculate a bill rate, whether its yours as a founder or a member of your staff. The process outlined below provides a simple method to calculate a bill rate. It involves working backwards from the amount of money received at the end of the month, and taking into account factors such as the cost to the business and billable capacity. The document also covers considerations such as markups, profitability, and quality of work.

For a member of staff this is their base salary, for an agency founder or director its your dividends or salary. Depending what stage of the business you are at, you can start with your current dividend and also work out what you want to get to in the future as your business grows. The gap between the two is your goal to achieve in a certain timeframe.

Here’s how I calculate bill rate

1. Take your ‘cost to the business,’ which is the dividend/salary. For this example, I’ll use two people, one at a cost of £5k to the business and one at a cost of £1k*

2. Calculate how many days and hours you work per month. For this example, I’ll use 7 hours a day; 140 working hours per month and using the assumption of 20 working days in a month.**

3. Divide your cost to the business by the 20 days worked in a month. This gives you the ‘cost to the business’ by day. The £5k per month employee (person 1) equates to £250 per day and the £1k per day employee (person 2) equates to £50 per day.

4. Next you want to calculate your bill rate per day. To do this as a calculator multiply the day rate by the number of days you work (if you want access to this template, email me on [email protected])

5. For now, place any rate in the day rate cell. For this example, I’ve used £200

6. Next you want to get to your mark up per person. To do this, divide your day rate by your cost to the business per day

7. Using the examples, a day rate of £200 for person 1 has a mark up of 0.8 and person 2 has a mark up of 4

8. You should aim for a minimum mark up of 3 for each person. Using this as a minimum, you can see below person 1 should be billed at a minimum of £750 per day and person 2 a minimum of £150.

9. To get these as hourly rates divide the day rate by 7 assuming 7 working hours per day.

Use the calculator above to flex and push your bill rates as your income increases and your agency grows.

*For full accuracy you want to put your full cost to business including NI and pensions.

**Assuming 20 days of working days in a month. This will change per month so its up to you if you wanted to change this each month. Unless your income varies per month based on days you work then I’d keep it as is explained above for simplicity.

You’ll want to be considering the following

In terms of minimums, when you first start your business and you have limited general expenses eg rent, tools, back end staff then you can get away with the minimum mark up of 3. Hence why smaller new businesses can undercut bigger competitors.

However, as you grow and scale you’ll want to be pushing your mark ups to 5x and even 10x in some instances. The larger the bill rates the more profitable you will be (provided you have costs control measures in control to keep costs within 20% of turnover).

On the flip side, you can’t push your bill rates too high otherwise the value of your work will get to a point of diminishing returns. Using the example above, if you billed out person 2 at the same rate as person 1 its likely the quality of the work won’t be high enough, if it is, then person 2 is due a pay rise.

Typically the more senior the person the more expensive their bill rate should be as its reflected in their cost to the business. Anytime they get promoted or jump a pay banding they should have an increased bill rate.

You should define your bill rates per role and based on seniority. These should be reflected in your salary bandings and progression and development for your staff.

In conclusion, calculating a bill rate can be a straightforward process using the steps outlined in this document. By taking into account factors such as cost to the business, billable capacity, markups, and profitability, you can determine a bill rate that is both reasonable and profitable for your business. As your business grows and scales, it’s important to continually evaluate and adjust your bill rate to ensure that it aligns with your goals and the value of your work.

Where do you go from here? Well, there’s a hint above, once you have your bill rate and number of working days you have your billable capacity which dictates how much income your agency should be billing based on the staff you have available. More on this in a future post as it also plays into forecasting and hiring in line with a sales pipeline.