Effective Hourly Rate

What is an effective hourly rate?

The effective hourly rate is total collected revenue divided by total hours worked on a matter, client, or for the firm overall. It represents what you actually earned per hour regardless of your stated billing rate. Fixed-fee work, discounts, write-offs, and collection losses all affect the effective rate. This metric cuts through billing complexity to show true hourly productivity.

Effective rate for fixed-fee work

When you quote fixed fees, track the hours spent anyway. Divide the fee collected by hours worked to get the effective rate. Compare this to what you would have earned billing hourly. Fixed fees priced well yield higher effective rates than hourly billing. Fixed fees priced poorly yield lower effective rates. This analysis informs future pricing and helps identify engagements that need restructuring.

Using effective rates for decisions

Compare effective rates across clients to find your most and least profitable relationships. Compare across services to identify which offerings generate the best returns. Compare across professionals to understand productivity differences. Effective hourly rate provides a common denominator for comparing diverse work types. It focuses attention on actual economic results rather than billing activity.