business · 2026-05-01
Compute the minimum billable hourly rate to hit a target margin given staff fully-loaded cost, target utilization rate, and overhead.
| Avg annual salary | $95,000 |
| Burden rate (taxes/benefits/etc) % | 35% |
| Monthly overhead per head | $1,800 |
| Target utilization % | 70% |
| Target gross margin % | 45% |
| Loaded cost per available hour | $72 |
| Available hours / year | 2,080 |
| Billable hours / year | 1,456 |
The naive rate setting ($salary ÷ 2,000 hours = hourly rate) ignores burden, overhead, AND the fact that not every available hour is billable. Mature agencies with sustainable margins charge 3-5x naive computation.
fully loaded cost = salary × (1 + burden) + (monthly overhead × 12)
billable hours = available hours × utilization rate
required rate = total cost ÷ (billable hours × (1 − target margin))Default scenario: $95k salary, 35% burden, $1.8k/mo overhead, 70% util, 45% margin → ~$165/hr required to hit the margin target.
The 70% target accounts for: 10% sick/vacation, 10% admin/internal, 10% pitch/sales, 70% billable client work.
The "margin" you target should account for these. If you target 45% but average 25% scope creep, your real margin is closer to 30%.
Mature digital agencies: 40-55% gross margin (after staff cost), 15-25% net margin (after overhead). Below 30% gross margin = poor pricing or poor utilization. Above 60% gross margin = either underinvesting in talent or running at unsustainable utilization.
Blended is simpler — single rate for all roles. Tracking is easier. Per-role lets you charge senior architect time more than junior dev time, which buyers actually expect on enterprise engagements. Most agencies use 3-tier per-role: Junior $X, Mid $1.5X, Senior $2X. Use blended for fixed-bid; tiered for T&M.
Allocate 100% of leadership cost into the per-head overhead. A $250k/yr senior lead managing a 10-person agency = $25k/yr overhead per head ≈ $2k/mo overhead. The default $1.8k/mo overhead in this calc roughly captures office + software + a part-time leader.