How to calculate an agency employee's hourly cost

Fully loaded hourly cost is what one hour of an employee's work costs the agency once salary, benefits, employer costs and a share of company overhead are included.

1. 1
   Direct monthly cost = salary + benefits + employer insurance + bonuses + employee-specific expenses
2. 2
   Overhead hourly rate = total monthly overhead ÷ total company productive hours
3. 3
   Fully loaded hourly cost = direct monthly cost ÷ employee productive hours + overhead hourly rate

The figures below are illustrative. They are not customer data, and they work in any currency.

• Overhead hourly rate = 120,000 ÷ 2,400 = 50
• Direct hourly cost = 30,000 ÷ 160 = 187.5
• Fully loaded hourly cost = 187.5 + 50 = 237.5

If the designer spends 25% of the month on one client, that is 40 hours, or 9,500 of labor cost for that client.

Add the same figure for everyone who worked on the client. Then subtract it, with the client's direct costs, from the client's revenue:

Client contribution margin = recognized client revenue − client labor cost − freelancers − production − transportation − client tools − other direct client costs

• Using calendar hours. Divide by productive hours: the work schedule minus weekends and public holidays.
• Leaving out the owner. If the owner works in operations, the owner's salary is a cost.
• Ignoring overhead. Rent, software and non-billable roles are paid for by client work.

Agency Root calculates fully loaded employee cost and overhead allocation every month, and uses them to show client profitability. Cost changes are effective-dated, so closed months do not change. Included in Agency Growth and Agency Scale.

Client profitabilityQuotations, proposals and pricing