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What is effective hourly rate and how does it differ from the standard rate?
Effective hourly rate is the revenue earned on a piece of work divided by the total hours spent on it, whether billable or not. It differs from the standard rate, which is the list price per hour. The effective rate shows what the work really earned per hour.
Example: a fixed fee of 10,000 for 125 hours of work gives an effective rate of 80 per hour, regardless of a standard rate of 120.
It matters most for fixed-fee and capped work, where overruns reduce the real rate.
Commonly misread:
- Excluding unrecorded or unbilled time.
- Comparing with the standard rate and calling the gap a discount, when it also reflects scope creep.
- Using revenue billed rather than collected.
Compare effective rate with your cost rate per hour to see whether the work was profitable.
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