Agency utilization + billable rate calculator

How agencies set rates that actually pay the bills

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.

The math

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 utilization reality

• 80%+ utilization: rare and unsustainable. Engineers burn out; quality drops.
• 65-75% utilization: healthy mature agency
• 50-65%: typical mid-tier agency or solo freelancer
• <50%: lots of slack — usually new hire or business-dev-heavy senior

The 70% target accounts for: 10% sick/vacation, 10% admin/internal, 10% pitch/sales, 70% billable client work.

Where margins evaporate

• Scope creep: agreed at 100 hours, delivered in 140. The extra 40 hr cost margin × 100% — pure margin loss.
• Ramp-up time: new project takes 20% longer than estimated for the first month.
• Account management overhead: not billed but eats senior time.

The "margin" you target should account for these. If you target 45% but average 25% scope creep, your real margin is closer to 30%.