The denominator matters as much as the wage. Cost per paid hour measures the cost of time on payroll. Cost per billable hour spreads the relevant cost over the hours expected to generate revenue. Both can be useful, but they answer different questions.
Start with a defined monthly cost
Assume wages of 3,200 and other employer costs of 800 for one employee in a month. Total employment cost is 4,000. The 800 is a fictional input, not a statutory rate. Determine actual payroll obligations for the location and employment arrangement.
The employee is paid for 160 hours. Of those, 40 are reserved for leave, training, internal work and time that cannot be billed, leaving 120 billable hours.
Cost per paid hour = 4,000 ÷ 160 = 25
Employment cost per billable hour = 4,000 ÷ 120 = 33.33
Charging a cost allowance of 25 for only the 120 billable hours recovers 3,000, leaving 1,000 of employment cost unrecovered in this model.
Add overhead only if it is not already included
Suppose another 1,200 of business overhead is allocated to this employee’s work. Full included cost per billable hour is:
(4,000 + 1,200) ÷ 120 = 43.33
At an illustrative 20% margin after these included costs, the price per billable hour is 43.3333 ÷ 0.80 = 54.17, rounded at the end.
That price assumes all 120 hours are sold and collected at the stated price. It excludes taxes, bad debt, materials and any other unlisted cost. It is not a recommended hourly rate.
Do not count time twice
Choose one coherent method. If you already recover non-billable employment cost through the billable-hour rate, adding a second allowance for the same non-billable wages duplicates it. If overhead is inside the hourly rate, do not add it again as a separate job allocation.
For a crew, distinguish elapsed hours from person-hours. Two technicians spending three hours on site use six person-hours. A vehicle charge may instead depend on one trip, so multiplying every input by the crew size can also overstate cost.
Test a lower utilisation assumption
If billable hours fall to 100 while the 5,200 cost remains unchanged, included cost per billable hour becomes 52. The same 20% target would imply 65 per hour. Whether that price is achievable is a separate commercial question.
Business Queensland describes hourly pricing in relation to business costs and available time. The monthly inputs and utilisation scenarios above are our own model. Hourly-pricing reference.
Continue with capacity planning, overhead allocation or the HVAC loaded hourly cost calculator.
About the examples and sources
The figures are hypothetical teaching examples created for AskToBot, not surveyed prices or recommended industry margins. The linked references explain the underlying concepts; they do not supply or endorse these example figures. The arithmetic is checked against the stated assumptions. This is AI-assisted educational content and has not been independently reviewed by an accountant. Read how we check calculations.
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Sources & references
- Pricing products and services — Business Queensland
