If you sell services, you only get paid for the time you are directly working for clients. The trouble is, there’s a lot of time the client doesn’t see you working on their behalf. When pricing your services, these “extra” hours need to be considered.

Time you need to average across all clients (Start keeping track of these so your estimates get more accurate):

• Emails on their behalf
• Invoicing, collecting payment, and answering billing questions
• Writing the proposal and closing the deal
• Waiting and checking to see if the client is ready for the next step

Time directly attributable to the client and billed correspondingly:

• Traveling to/from their location
• Researching something specifically for them
• Building/delivering/doing/fixing their stuff (sadly, this is the only part they really “see”)
• Revising (usually at the request of the client)

Time that is truly overhead, not attributable to specific clients:

• Marketing
• Selling (in general, not a specific client)
• Managing your business finances (banking, taxes, management)
• Hiring, managing, and training employees
• Training to advance your skills and certifications
• Vacation, sick time, holidays
• Opening the mail including junk mail and spam email (yes sadly it takes your time)
• Waiting for the phone to ring

For example, when we hire a plumber who charges us $75 an hour, we know he’s not really making $156,000 per year ($75 x 40 hours x 52 weeks). For every hour he works in someone’s house, he spends time getting supplies, invoicing, writing an estimate, and collecting the money.

So remember when you are figuring your rate per billable hour, there is a lot of effort the client doesn’t see but needs to be incorporated.  Let me know how your billable hours are calculated in the comments below.

Now stop reading about your billable hours and start doing! Let’s create your personal profit strategies for growing profit. Call small business profitability coach Merra Lee Moffitt, CFP®. She can be reached at, 888-920-2030 or by email at merralee@captureprofits.com.

Your Target Billable Rate for Service Pricing

So how many working hours in a year can you really expect to sell, even if you could sell them all? If you are a sole practitioner not yet ready to hire help, your billable hours and your billable rate determines whether your family will thrive, survive, or dive. Let’s determine how you set your billable rate using target family income. In other blogs, we’ll use other methods such as value pricing

Working full time at a regular job is 52 weeks a year at 40 hours a week, so 2,080 maximum working hours in a year. Some of us actually remember working at a straight job, the kind that used to have a salary.  So here’s a methodology for determining your target rate per billable hour.

1) Subtract days we need to take for vacation days, education days, sick days, or other large blocks of time that reduce our available billable hours.

2 weeks vacation (at a minimum) – subtract 80 billable hours
2 weeks of holidays (in your own business you may end up doing paperwork those days) – subtract 80 billable hours
2 weeks education (realistic, even if you just do some educational research on the web) – subtract 80 billable hours
2 weeks sick time (again, realistic if you have kids, a spouse, parents or actually get sick yourself) – subtract 80 billable hours

So now we are at 44 weeks at 40 hours or 1,840 billable hours in a year.  That is, if we could actually charge clients for every hour of the week, which is unrealistic.

2) Calculate overhead time spent building, managing, and administrating your business.

Typically, these are items performed every week, and reduce your available billing hours on a regular and persistent basis. How many hours do we need for overhead time? What’s a realistic amount of time each week for:

Invoicing clients
Marketing and sales to get clients
Collecting money from clients
Answering customer service questions
Re-work for service (which you may not be able to bill)
Keeping records (for the IRS, for later customer questions, for analysis)
Researching new methods to help clients
Copying, faxing, emailing, filing

Even if you are good at sales, efficient at paperwork, and fast at implementing new ideas, you are probably looking at 10 hours a week of overhead time (more than one day a week).

So within that 40 hour week, you now have 30 average billable hours. That is, if you have no down time between client projects. A reasonable estimate for down time is another 15%. This is time within a project that can’t be billed because the client is not ready for your next step, or between projects when you are looking for billable hours or not yet started. This 15% applies if you are in a field with good reasonable demand that doesn’t get persistently rescheduled (such as when you are waiting for equipment to be delivered or other client delays). Some of that down-time can be absorbed by your overhead projects. That is why you can’t always set aside specific times of the week for your overhead (or end up spending nights and weekends). So we will use 10% for our down time estimate, or 4 additional hours a week. That leaves 26 average billable hours available in a full working week. Over 44 weeks, that is 1,196 average billable hours in a year. This should be your target for an average work week; one with no holidays, sick days, or vacation days.

3) How much you want to make determines your billable rate.

If you want to bring $100,000 a year into your family before paying personal taxes, and you have 30% benefits expense (we’ll discuss in another post), you’ll need to charge $109 as your billable rate for an hour. If your clients won’t pay that billable rate, it’s time to roll up your sleeves and find another way or your family won’t eat! (This is where people call me and we find a way to solve this problem.)

If you think my estimates are too high, tell me, what would you give up first? I appreciate your comments.

Now stop reading about finding your billable rate and start doing! Let’s create your personal profit strategies for growing profit. Call small business profitability coach Merra Lee Moffitt, CFP®.  She can be reached at, 888-920-2030 or by email at merralee@captureprofits.com.

“Seek new clients, seize better income, capture more profit”