Where project profit disappears
The rate you calculate when pricing a project usually assumes that only production hours count. In practice, a project also absorbs sales conversations, onboarding, revision rounds, invoicing and follow-up. None of it is visible in the fee, yet all of it comes out of what the job pays you.
A review after each project can be surprisingly useful. Over several jobs, patterns often appear: a certain client type needs far more revisions, or small projects pay less per hour than large ones because their overhead takes a bigger share.
The formulas
Net after costs
Net = Fee − Expenses − (Fee × Payment fee % ÷ 100)
Effective rate
Effective rate = Net ÷ (Core hours + Unpaid hours)
Difference
Difference % = (Quoted rate − Effective rate) ÷ Quoted rate × 100
Worked example
A $5,000 project was priced on 40 hours, so it seemed to pay $125 an hour. It also took 15 unpaid hours, $200 of expenses and a 3% payment fee.
- Rate you thought you earned: $5,000 ÷ 40 = $125.00.
- Net after costs: $5,000 − $200 − $150 = $4,650.00.
- Total hours: 40 + 15 = 55 hours.
- Effective rate: $4,650 ÷ 55 = $84.55, which is 32.36% lower than it looked.
What to do with the result
- Adjust your estimates. If unpaid time keeps running at a set share of the job, add it to your next quote using the project pricing calculator.
- Set a minimum project size if small jobs consistently underperform.
- Limit revisions in your contract, and charge for further rounds.
- Compare clients. Sort past work by effective rate and focus your marketing on what pays best.
Frequently asked questions
Should I include the time spent winning the job?
Yes, at least for a fair picture. Sales time is a true cost, even if it is hard to assign when many proposals fail. A simple approach is to add the time spent on this job's proposal and meetings.
Is this before or after tax?
Before income tax. Compare it to your pre-tax rate target and not your take-home pay.
How is this different from utilization?
Utilization looks at all of your time across a period. Effective rate looks at what a single project earned, so the two work well together.
What is a good effective rate?
At minimum, it should reach the floor from the hourly rate calculator. Note that some non-project time, such as general admin, is already covered by the billable share in that calculation.