Learn how pay rates, cost rates, and billable rates impact profitability.
Pay, cost, and billable rates are important accounting terms. They tell you about the money coming in and going out of your business (“cash flow”). And together, they determine your profits.
Here’s an overview of what they are and how you can manage them.
Learn about cost types and terms
Manage your pay rates, cost rates, and billable rates
So, how does this all add up?
Pay rates and cost rates represent expenses to your business. Billable rates, on the other hand, represent potential income.
|Sales (income) - cost rates (expenses) = profit from a sale or project|
These rates are all manageable. How you manage them (“job costing”) depends on your business plan and customers. There’s no single right way to do it. Keep these in mind as you’re managing your business and projects:
- Make sure you’re paying your workers fair wages that are sustainable for your business.
- Review your products and services as often as possible. Use financial reports to see what's selling well. Adjust your billable rates as needed.
- Make sure you're accounting for your general overhead expenses, not just direct costs for projects or running your business. Otherwise, it may feel you're making more money than you actually are.
- Some costs, like employer taxes, are outside of your control. Make sure you’re planning ahead for these types of costs.