Billable hours, as we talked about last time, is an important element of your overall profitability.  We left off with the concept of triple billing where you are left with only one third of your total revenue for salary payment.

When you start putting together a billing rate you need to make sure that given a reasonable number of billable hours, you have enough to pay yourself of someone else a decent salary.   At a $75 per hour billing rate and 30 billable hours per week, you have to consider:

  • "What kind of technical person will I be able to find who has the high end technical skills  needed by my sweet spot small business clients if my technical salary budget is only $37,500 a year?"
  • With that rate level and billable hours based on 75% utilization, "What kind of polished B to B sales person are you going to be able to find if you can only offer a base salary of $27,500 a year?"  Remember, you lose $10,000 from your sales budget for things like direct mail, attending organization and networking meetings, sponsoring events, doing seminars, etc…
Finding good staff with high skills for such low salaries is like Fantasy Island for most new small business computer consultants. That’s why the rate you set must factor in billable hours and the triple billing concept.

Let’s run the numbers with a rate of $100 an hour.   

$100 an hour  X  30 billable hours per week  X  50 weeks = $150,000 a year gross.
  • One third ($50,000) will take care of taxes, insurance and overhead items.
  • Another $50,000 will pay a technical staff salary - yours or someone else’s.
  • The last third is plowed into sales and marketing.  $10,000 of that goes for marketing expenses and now you can afford a base salary of $40,000 for your sales account executive.
The difference between $75 an hour and $100 an hour is significant.  The billable hours stay the same as does the utilization but all of a sudden you are working with acceptable salary figures. A range of anywhere from $100 to $125 per hour provides you with the revenue base you need.  Going beyond the $125 is not recommended though, because you’ll price yourself out of the sweet spot market.

Bottom Line on Billable Hours
Billable hours and your billing rate are key to your business success.  Make sure that when you set your billing rate you take into account a realistic view of the number of hours billable per week.  An hourly rate may seem great at first glance but when you crunch the numbers you have to be able to make enough to account for the triple billing phenomenon.  
 
In this article, you’ve been introduced to Billable Hours. To learn more about how you can improve your knowledge about Billable Hours, just click here now to get access to a free one-hour audio training program on 5 Easy Ways to Grow Your Computer Consulting Business.