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Understanding pay rates, cost rates, and billable rates in QuickBooks

by Intuit5 Updated 5 days ago

Learn how pay rates, cost rates, and billable rates work together to impact your profitability and cash flow. This article explains these key accounting terms and provides tips for managing them effectively.

🛈 This article is for customers who use QuickBooks Online (Simple Start, Essentials, Plus or Advanced).


Learn the basics

Pay rate: This is the amount you pay an employee or contractor for their work, also known as their wage. It doesn't include additional costs like benefits, overhead, or taxes.

Cost rate: This is the total cost of an employee to your business, including their pay rate, benefits, overhead, and taxes. For products, it includes the purchase price, manufacturing expenses, and shipping costs.

Billable rate: This is the amount you charge customers for your products or services. It's essentially the price and determines your income from sales.

Manage your rates

Pay rates and cost rates are expenses, while billable rates represent potential income. The difference between your income (sales) and expenses (cost rates) determines your profit.

Here are some tips for managing your rates effectively:

  • Pay fair wages: Ensure you're paying your workers fair wages that are sustainable for your business.
  • Review your pricing: Regularly review your products and services and adjust your billable rates as needed to ensure profitability.
  • Pay for overhead: Make sure you pay for all your costs, not just direct costs, to get a clear picture of how much money you make.
  • Plan for external costs: Consider external costs like employer taxes that are outside of your control and plan for them accordingly.


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