A fixed fee or milestone-based project hides its real hourly rate until the work is actually done. You agree on a number upfront, then absorb whatever revisions, calls, and scope creep the job ends up taking. This calculator reverses that math: it takes what you were actually paid, subtracts the costs that came straight out of the fee, and divides what's left by every hour the project consumed — billable or not — so you can see the rate that actually landed in your pocket, not the one you quoted.
How it works
Start with the net fee: the project fee minus direct costs, meaning expenses tied specifically to this job — a subcontractor, a stock license, a plugin you bought just for it — not your general business overhead. That net fee gets divided by total hours, which is billable hours plus non-billable hours. Non-billable hours are the ones that never made it onto an invoice: scoping calls, extra revision rounds, research, project management, chasing down feedback. The result is your effective hourly rate — what the project paid you per hour of actual effort, not per hour you charged for.
Two more numbers come from the same inputs. Margin percent is the net fee as a share of the full project fee, which tells you how much of what the client paid went to you versus your direct costs. Gap to target compares the effective rate against a target hourly rate you set — a positive gap means you fell short of that target, a negative gap means you cleared it. Both figures are computed from the unrounded effective rate before any rounding happens, so they stay internally consistent with each other even after the calculator rounds what it displays.
Worked example
Say you invoiced a $5,000 project fee, spent $500 on direct costs, logged 40 billable hours, and lost another 10 hours to unbilled revisions and calls. You were aiming for a $100 hourly rate.
- Net fee: $5,000 − $500 = $4,500
- Total hours: 40 + 10 = 50
- Effective hourly rate: $4,500 ÷ 50 = $90.00
- Margin: $4,500 ÷ $5,000 × 100 = 90%
- Gap to target: $100 − $90 = $10.00
The quoted math looked fine going in — $5,000 for roughly 40 hours of work implies a $125 rate. But once the 10 hours of unbilled revisions and the $500 in direct costs are counted, the project actually paid $90 an hour, ten dollars short of the $100 target. That gap is not a rounding artifact; it is the real cost of the hours that never got billed.
How to interpret your result
The effective hourly rate is the truest number this calculator produces — it is what the project paid, full stop, after every cost and every hour are counted. If it consistently lands below your target across similar jobs, the fix rarely lives in one place. Sometimes the fee itself was too low. Sometimes direct costs quietly ate more of the deal than expected. Most often, though, it's the non-billable hours: a client who needed three rounds of revisions when the quote assumed one, or a scope that grew without the fee growing to match.
Margin percent tells you how much of the headline fee is actually left after direct costs, separate from the labor question entirely. A healthy margin with a disappointing effective rate points at underestimated hours, not underpricing. A weak margin with a strong effective rate points the other way — the job paid well per hour but direct costs were eating into what should have been profit.
Treat the gap to target as a diagnostic for your next quote, not a verdict on this one. A single project running behind target doesn't mean your rates are wrong; a pattern across several similar projects does. Use it to adjust how you scope revisions, price direct costs into the fee upfront, or pad your hour estimate for the kind of client who tends to generate extra unbilled work.
Methodology & sources
The formula is effectiveHourlyRate = (projectFee − directCosts) / (billableHours + nonBillableHours). Margin percent is (projectFee − directCosts) / projectFee × 100, and gap to target is targetRate − effectiveHourlyRate, computed from the unrounded effective rate before the displayed figures are rounded.
Separating direct costs from a project fee mirrors how the IRS treats business expenses on Schedule C — its instructions for Schedule C walk through what counts as an ordinary, necessary cost of doing business, the same distinction this calculator draws between direct costs and your net take. And the billable-versus-non-billable split that drives the hours side of the formula is a standard concept across consulting and freelance work, summarized well in the Wikipedia overview of billable hours.