Your effective billing rate is how much you make per hour, even when you’re not working. Average all your revenue over all your hours, and you have the amount you’re effectively getting. Watch the video below and comment on it.
Define Effective Billing Rate: The billing rate you are actually getting when all working hours are included in the calculation of revenue divided by hours.
Here’s the deal… consultants usually can’t bill for every hour they work. They perform in-house tasks. They attend company meetings. They have admin overhead. Those are usually not billable activities, so you don’t get paid for them. You only get paid for the billable activities. So divide your total revenue by your total (billable and non-billable) hours and you have your effective billing rate.
Yikes!
Here’s an example: Say you worked 40 hours and charged $100 per hour. All the hours were billable. Your total revenue for the week is $4,000 and your effective billing rate is $100 per hour. Nice!
But what if only 30 of those hours were billable? The other 10 were admin. Your total revenue is now $3,000. $3,000 divided by 40 (total hours) is only $75 per hour.