Effective Rate
Effective rate is what you actually earn for every hour you work, once non-billable time is spread across the hours you can bill. It turns a headline hourly rate into the real return on your time.
How it is calculated
Divide the revenue you collect by the total hours you work, not just the billable ones:
- Charge 80 per hour and bill 6 hours out of an 8-hour day, and you invoice 480.
- Spread across all 8 hours worked, your effective rate is 480 / 8 = 60 per hour.
The gap between the 80 headline rate and the 60 effective rate is the cost of non-billable time.
Why it matters more than your headline rate
Your headline hourly rate only applies to billable hours. Utilization - the share of your time that is billable - and realization - the share of billable value you actually collect - both pull the effective rate down. If you price only on the headline number, you can be busy and still underpaid.
How Sandtime.io fits
An honest effective rate starts with a complete record of billable and non-billable time. Sandtime.io captures both as work happens and reports utilization and billable hours, so you can see the real return on every hour and set a rate that holds up.
Related Terms
Effective rate depends on utilization rate and realization rate, builds on recorded billable hours, and reframes your headline hourly rate.