Enter cost and billing assumptions
How it is calculated
Annual cost to recover = direct labor cost + allocated overhead. Required annual revenue = annual cost to recover ÷ (1 − target margin). Illustrative hourly rate = required annual revenue ÷ expected billable hours.
The margin input is a planning target. Costs, billable hours, contract terms, market conditions, taxes, and firm accounting practices vary. This is general education only, not engineering, legal, tax, or investment advice. Licensed PE judgment and local codes govern engineering work.
Example scenario
A hypothetical civil engineering firm owner enters $100,000 in annual direct labor cost, $50,000 in allocated overhead, 1,500 expected billable hours, and a target margin of 25%. The calculator reports $150,000 in annual cost to recover, $200,000 in required annual revenue, and an illustrative hourly billing rate of $133.33. These inputs are hypothetical, not market rates or a rate recommendation. The calculation can help the owner discuss what rate would recover the entered costs at the chosen margin and planned billable hours. Before changing a rate or proposal, check the labor and overhead allocations, realistic billable hours, utilization, and the firm’s contract and accounting policies. Then compare the illustration with actual project results and collection experience. The output does not establish what clients will pay or guarantee cost recovery.
Method, inputs and limits
Purpose
Estimate an hourly billing rate from annual labor cost, allocated overhead, expected billable hours, and a target margin.
Inputs and defaults
Annual direct labor cost: $90,000; allocated overhead: $54,000; billable hours: 1,400/year; target margin: 15% of revenue. Costs nonnegative, hours above zero, margin from 0% up to but not including 100%.
Formulas
Cost to recover = labor + overhead. Required revenue = cost to recover ÷ (1 − target margin). Hourly rate = required revenue ÷ billable hours.
Outputs
Annual cost to recover, required annual revenue, illustrative hourly billing rate.
Test cases, expected values
- Defaults: $144,000 annual cost; $169,411.76 required revenue; $121.01/hour.
- $100,000 labor, $50,000 overhead, 1,500 hours, 25% margin: $150,000 cost; $200,000 revenue; $133.33/hour.
- $0 labor, $0 overhead, 1,000 hours, 0% margin: $0 cost, $0 revenue, $0/hour.
Disclaimer
This is an illustrative cost recovery calculation, not a rate recommendation. Firm policies, contracts, market conditions, utilization, and accounting choices vary. General education, not professional advice. Licensed PE judgment and local codes govern engineering work.
