Effective Hourly Rate
Agency glossary · Updated July 2026
Definition
Effective hourly rate is the revenue an agency actually keeps per hour truly worked on an engagement, found by dividing the fee earned by every hour spent on it, billable or not. It reveals the real rate after scope creep, revisions, and over-servicing, which is often far below the quoted rate.
Fees earned on the work / all hours actually worked on itWhy it matters
The gap between your quoted rate and your effective rate is the earliest sign that pricing or scope is leaking margin. Closing it lifts profit with the clients you already have.
Benchmark
Keep the effective rate at roughly 2.5 to 3 times fully loaded labour cost per hour, which corresponds to a 60 to 70% delivery margin.
Common mistake: dividing by only billable or invoiced hours, which ignores over-servicing and makes a money-losing client look profitable.
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