Most people price their work by the hour, then never go back to check what each hour actually earned them. For some clients who look profitable, the answer is far below the rate in the proposal. Here is how to work out the real figure, and what to do when it disappoints you.
Your quoted rate is what you put in the proposal. Your effective hourly rate is what the work earned you (what you invoiced, minus any direct costs) divided by every hour it really took, including the hours you did not put on the invoice. Nobody bills the forty-minute “quick call”, the third round of revisions, the scoping document that grew into a proposal, or the afternoon spent redoing something after the client changed their mind. Those hours are real. They just do not appear anywhere, which is exactly why they keep happening.
The same rate, two very different clients
Take two clients billed at €80 an hour. Each is invoiced for 40 hours in a month, and each pays €3,200 on time. On paper they are identical. In reality, an hour spent on one of them earns you nearly 50% more than an hour spent on the other.
Client A pays you far less per hour, and nothing in your accounts shows it. You give them 26 hours a month without invoicing for them, yet the profit-and-loss statement shows €3,200 from each client, and so does the bank.
A client can pay a good rate and still pay badly for the hours the work actually took.
Where the unbilled hours actually go
When people finally measure this, they rarely find the lost time in the work itself. It disappears into the tasks around the work, the ones that feel too small to log, so nobody logs them and nobody prices them.
Only the first two, 16 hours between them, come from a demanding client. The other ten hours are the normal cost of working with anyone. If you do not charge for them, you price every project as if that work took no time at all.
The three numbers you need
Effective rate is a simple metric. It needs three numbers, and most people are missing one of them.
- Every hour spent, billable or not, attached to the client or project it belongs to. This is the missing one. Hours you did not record look exactly like hours that never happened.
- Revenue from that client in the same period: invoiced, not just quoted, and ideally paid.
- Direct costs you paid for that client: subcontractors, software bought for the project, travel, anything you would not have spent otherwise.
Then calculate (revenue − direct costs) ÷ hours actually spent. Compare the result across clients, and against what you could earn doing something else.
Once your clients are ranked like this, the decisions become much less emotional. Nobody is to blame for the client at the bottom of the list. It is a pricing problem, and there are four ways to fix it.
Four things to do about a low effective rate
1. Raise the rate to close the gap
If Client A takes 66 hours to deliver 40 hours of billed work, then charging them €80 really means charging them €48. A new rate of €110 simply moves the price closer to what they have always cost you. With the tracked hours in hand, the conversation rests on evidence, which makes it far less awkward.
2. Bill the work around the work
Calls, status updates and revisions beyond the agreed rounds are part of what you deliver. Put them on the invoice as line items, or include them in a retainer that allows for them. Either approach is fair. Absorbing them without a word is the only one that is not.
3. Cap the scope
“Two rounds of revisions included, further rounds billed hourly” turns an open-ended promise into a priced one. Most scope creep is not ill-intentioned. The client simply does not know the small request costs anything, because you have never told them it does.
4. Let the client go
Sometimes the effective rate is low, the relationship will not survive a price rise, and your time is simply worth more elsewhere. That is a legitimate outcome, and it is far easier to act on once it is a number in front of you.
How TimerOS helps
TimerOS keeps hours and revenue in one place and calculates the profit view from both, so nobody has to type the figures in separately.
- Hours go to a project and a client. The Windows desktop app records them as you work, and activity is classified on your own machine, with no screenshots and no keystroke logging. It records the unbilled hours too, so you no longer have to remember them.
- Projects have budgets. As the hours add up, a project with a budget shows how much of it has been used, which is your early warning that Client A is heading for 66 hours again.
- Invoices come from the same projects, generated from hours worked or from a project budget, so revenue and hours sit side by side.
- Billing, clients and a profit overview are on every plan, Freelancer included. On the lower plans, expenses and profit come in a basic form. Enterprise adds a full P&L with payroll and vendor bills, plus custom support tiers with SLA targets. The pricing page has the exact split.
None of this means working harder or watching anybody. You only need to know where the hours went, and the difference between a €48 client and a €71 client easily repays the effort of finding out.