Effective Hourly Rate for Managed Services Contracts

November 18, 2013 by

I’ve been getting a lot of questions about effective hourly rate lately. I thought I would do a quick post here:

Example: If I paint your house for $100 and it takes me two hours, my effective hourly rate (EHR) is $50 per hour. If it takes me four hours, then my EHR is $25.

Comparison: If you have a managed services agreement with $1000 in monthly revenue and $100 in hard costs, then you have $900 left over. If you want a MINIMUM of $150/hour then the most time you can spend is $900/$150 = 6 hours. That is your BUDGET for that contract. Never exceed your budget and you’ll be in great shape to match up your EHR with your stated hourly rate. Any time under 6 hours spent will INCREASE your EHR.

Folks, this is critical to understanding the profitability of your managed services contracts.

Let me know if you need some help! Do this!

Josh Peterson

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