LegalTimeTools

Effective Hourly Rate Calculator

Work backwards from a revenue target to the hourly rate it requires once write-downs and unpaid invoices are accounted for.

Last reviewed

·

Free · No sign-up · Runs in your browser

Rate setting usually starts from what other firms charge. A more useful starting point is arithmetic: given a revenue target and the hours actually available, what rate does the year require?

That question has two answers - one assuming every hour is invoiced and paid, and one reflecting reality. The gap between them is what write-downs and unpaid invoices are costing you, expressed as an amount added to every hour you bill.

Your numbers

Results update as you type. Nothing is sent anywhere.

Result

Required hourly rate

$397.02

Added by leakage

$75.59

Rate if nothing were lost
$321.43
Overall yield
81%
Hours assumed
1,400
Monthly revenue target
$37,500
Monthly hours needed
116.7

This tool performs arithmetic on the values you enter. It does not provide legal advice and does not create an attorney-client relationship.

The leakage premium is what write-downs and unpaid invoices add to the rate you must charge. Fixing collection lowers the rate you need.

Rate changes need client agreement and, for existing matters, usually written notice under the engagement terms.

How to use the effective hourly rate calculator

  1. Enter the revenue target for the year.
  2. Enter the billable hours realistically available in that year.
  3. Enter your realization and collection percentages.
  4. Compare the required rate against the rate at full realization.

What people use this for

  • Setting a rate from a revenue target rather than from the market.
  • Quantifying what poor collection is costing in rate terms.
  • Testing whether a target is achievable at a rate clients will accept.
  • Building the case for improving billing discipline instead of raising rates.

Worked examples

Every figure below is produced by running this calculator against the example inputs, so the numbers always match the tool.

A $450,000 target

$450,000 on 1,400 available billable hours at 88% realization and 92% collection.

Required hourly rate
$397.02
Added by leakage
$75.59
Rate if nothing were lost
$321.43

The same target with better collection

Realization improved to 94% and collection to 98%.

Required hourly rate
$348.92
Added by leakage
$27.49
Overall yield
92.1%

The leakage premium

If every hour recorded were invoiced and paid, a $450,000 target on 1,400 hours would need a rate of about $321. At 88% realization and 92% collection it needs closer to $397 - the extra is what leakage adds to every hour.

Framed that way, the choice becomes clear. You can charge clients more, or you can stop losing the difference. The second option does not require anyone to agree to anything.

Rate increases are not free

Raising a rate requires client agreement and, on existing matters, usually written notice under the engagement terms. It also puts the relationship into play at a moment you did not choose, and some clients will use it as a prompt to review the relationship.

Improving realization and collection has no such cost. It is internal work, it compounds every year afterwards, and it does not give anyone a reason to reconsider the engagement.

Methodology and assumptions

What this calculator does, and what it deliberately does not do.

  • The yield factor is realization × collection. The required rate is the target divided by (hours × yield factor).
  • The rate at full realization divides the target by hours alone; the leakage premium is the difference.
  • The calculation is about pricing arithmetic, not about what any market will bear.
  • The tool performs arithmetic or date counting on the values you enter. It does not interpret a rule, a statute or a contract.
  • Nothing you type is transmitted or stored - the calculation runs entirely inside your browser.

This website provides general informational and productivity tools and does not provide legal advice or create an attorney-client relationship.

The date and deadline tools count days exactly as you instruct them. They do not interpret court rules, statutes of limitation, filing requirements or any other legal authority, and they do not know the rules of your jurisdiction.

Always verify any date, fee, or calculation against the governing rule, the court calendar and your own professional judgement. If you need legal advice, consult a lawyer licensed in your jurisdiction.

Frequently asked questions

Is this the rate I should charge?

It is the rate the target requires on your own assumptions. Whether clients will pay it is a separate question that no calculator can answer.

What if the required rate is unrealistic?

Then one of the inputs has to change: a lower target, more available hours, or better realization and collection. The last is usually the most achievable.

Should I use gross revenue or profit as the target?

Revenue. Profit depends on the cost side, which this calculation does not model. Use a firm profitability calculator for that.

Does this apply to fixed-fee work?

Indirectly. Convert the fixed fees to an implied hourly figure across the hours they consume, then compare against the required rate.

Related calculators

More time & utilization tools on LegalTimeTools.

Browse all 4 tools →