Billable hours have a great deal to do with setting your rates.  The revenue you bring is in based on the number of billable hours you work.  From that revenue though, you have to take off your business expenses.  

You need to make sure your average, realistic billable hours multiplied by your hourly rate will be enough to turn a profit now and in the future.

Most new consultants come in with an hourly rate of $75 in their mind.  They believe that that rate will work out to a yearly gross of $150,000.  The fact is that if you carry a $75 or $85 per hour rate beyond the grand opening special to get your first couple of clients, your business will become more of a hobby or a non profit.

You say, “How can that be? Why doesn’t $75 an hour equate to $150,000 a year?” There are easily 2,000 billable hours per year, right? Wrong.

$75 an hour doesn’t come out to $150,000 a year because there are NOT 2,000 billable hours a year and here’s why.

New consultants often fail to consider all the overhead and expenses that usually come up as a business matures. The uninformed person just starting out usually believes that $75 an hour times 40 hours a week times 50 weeks a year is $150,000 a year in consulting revenue.  They think that the number of hours billable in a week is 40.  Unfortunately that’s Fantasy Island.

Unless you’re working a 100 hours, you won’t even have a shot at making 40 billable hours per week.  A good percentage of your work day is taken up with non billable hours.  Networking, marketing, sales calls, training, etc…; these activities all eat away at your billable hours.  

You can’t ignore business development activities so you have to adjust your hourly rate to account for a realistic amount of billable hours per week.

Bottom Line on Billable Hours
Billable hours and your hourly rate are tied together and will largely determine your degree of profitability.  You can’t expect to enjoy 100% of your time as billable hours.  You need to set your hourly rate high enough to remain profitable after considering a reasonable number of weekly billable hours.  

In this article, you’ve been introduced to Billable Hours. To learn more about how you can improve your knowledge about Billable Hours, just click here now to get access to a free one-hour audio training program on 5 Easy Ways to Grow Your Computer Consulting Business.