In this article you will learn six steps for creating your blended hourly rate, including...
- How to competitively price your services based on market conditions
- How to determine employee bill rates
- How to determine the partners' bill-out rates
The good news is that you don't need an MBA and you needn't have taken an accounting class to get the basics of your cost structure and an associated billable rate.
Let's roll through a simple set of steps to understand your overall strategy, which will dictate the underlying cost structure and associated blended rate of your services.
And though I typically write for the digital marketing agency ecosystem, these steps really apply to any services business. You can—and should—double-check these steps with your friends who are consultants, lawyers, accountants, etc.
Cost Structure: Important for a New Firm or Any Dynamic Operational Change
Depending on how long your business has been operating, many of the concepts in this article may be well understood, but it never hurts to start with the basics.
Even if your digital marketing agency is well established, should you be launching a new service, or opening an office in a new city, or taking on a new large client that will entail expanding your resources, you will want to roll right back to these basics for a sanity-check on doing smart business.
What's the objective of understanding your business's standard billing rate? The objective of this exercise is simply this: When your firm puts together a bid for a client, you and your team should be able to quickly check whether that bid equals profitable business.
Therefore, in the Keep It Simple spirit, my recommendation is to come up with a single blended hourly rate for your business. This way, everyone knows what is good business for your firm, assuming you can accurately estimate the number of hours involved.