What is the contribution per hour?

Contribution per hour measures the profit contribution generated from each billable hour worked, calculated as revenue per hour minus direct variable costs per hour. For professional service firms, this metric reveals which types of work, clients, or consultants generate the most value per hour invested, informing resource allocation and pricing decisions.

Key characteristics

• Revenue minus variable costs per hour

• Measures value created per hour worked

• Varies by work type and consultant

• Higher than gross profit per hour for variable cost focus

• Useful for pricing and staffing decisions

• Should be tracked by service line

Why it matters for professional service firms

Hours are a scarce resource in professional services. Understanding contribution per hour helps prioritize where hours should go. Work that generates a a $120 contribution per hour creates twice the value as work that generates a $60 contribution per hour. Professional service firms should analyze contribution per hour by service line, client, and consultant to optimize resource allocation.

Real-world example

Daniel's firm assumed all billable hours were equally valuable. Contribution per hour analysis: Service A billed at $185, variable cost $55, contribution $130 per hour. Service B: is billed at $150; variable cost $75, and contribution $75 per hour. Service C is billed at $220, with variable costs of $140 and a contribution of $80 per hour. Service A generated the highest contribution despite not having the highest rate. Strategic shift: grew Service A capacity, improved Service B efficiency (reduced variable cost to $60, contribution to $90), and ensured Service C projects justified their complexity. Contribution per hour analysis optimized resource deployment.