FREE TOOL — REALIZATION MATH
Effective Hourly Rate Calculator for Fixed-Fee Work
Free, instant, no signup. Adjust the inputs and the numbers update live. Every result is a planning estimate.
A fixed fee feels safe until you divide it by the hours it really eats — that's the moment a 'good' client turns out to be your lowest-paid one.
The math, in plain terms.
Your effective hourly rate is simply the monthly fee divided by the hours you actually spend delivering the work. A fixed fee hides this number, which is exactly why underwater clients survive for years: the invoice looks healthy, but nobody does the division. This calculator does it for you and compares the result to the target rate you actually want your team's time to earn.
Worked example: you charge a client $750 a month and the work genuinely takes 9 hours. Your effective hourly rate is $750 / 9 = $83.33. If your target rate is $150 an hour, the fee you'd need at those same 9 hours is $150 x 9 = $1,350 — nearly double. You now have a concrete number for the next fee conversation instead of a vague sense that the client is 'a bit tight'.
The last two outputs turn the rate into margin. If your fully-loaded staff cost to deliver those hours is $45 an hour, your gross margin over cost is about 46%, and the annual gross profit that client throws off is roughly ($83.33 - $45) x 9 x 12, or about $4,140. Run every fixed-fee client through this and you can rank your whole book by profit per hour — the single most useful sort an owner can do.
Questions, answered.
What counts as 'hours I actually spend'?
Everything the engagement really consumes each month: transaction coding, reconciliations, month-end review, the client's emails and calls, chasing missing docs, and the partial hour of admin around it. Owners almost always undercount here, which inflates the effective rate. If you're unsure, log one full month before trusting the number — the honest hours are the whole point of the exercise.
Should I use my target rate or my staff's cost rate?
Both, for different jobs. Target rate is what you want an hour of the firm's capacity to earn — use it to spot fees that are too low. Staff cost is your fully-loaded delivery cost — use it to see the margin that's actually left. A client can clear your cost comfortably and still fall far short of your target rate; that gap is where quiet, systematic underpricing lives.
My effective rate is above target on one client and below on another. Now what?
Rank the whole book by effective rate and profit per hour, then act on the extremes. The clients well below target are candidates for a fee increase, a scope trim, or a graceful exit; the ones well above show you what a genuinely well-priced engagement looks like so you can reprice new work to match it.
Is this financial advice?
No. This is a planning estimate to help you understand your own pricing, not tax, accounting, legal, or financial advice for you or your clients. Results depend entirely on the hours and rates you enter. Verify your real numbers and use professional judgment before changing any client's fee.
From spreadsheet to system.
Tracking the true effective rate on every fixed-fee client — and flagging the ones drifting underwater — is exactly the margin monitoring The Practice OS runs for you automatically.
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