Bill Rate vs Pay Rate

Bill rate and pay rate are the two sides of agency labor economics. Your bill rate is the hourly rate you charge clients for a team member's time. Your pay rate is what that team member actually costs you — their salary or hourly wage, plus benefits, taxes, and overhead allocation.

For full-time employees, the pay rate isn't just their salary divided by hours. A designer earning $80,000/year who works 2,000 billable hours costs more like $48-55/hour when you add benefits (health insurance, PTO, 401k match), employer taxes (FICA, unemployment), and per-person overhead (software licenses, equipment, office space). If you're billing that designer out at $150/hour, your gross margin on their labor is roughly $95-102/hour — or about 63-68%.

For contractors and freelancers, the math is simpler but the margins are usually thinner. You pay a freelance developer $100/hour and bill the client $135/hour — that's a 26% margin. The trade-off is no benefits cost, no bench risk, and no long-term commitment. Most agencies run a mix: full-time team for core capabilities (higher margin, more management) and freelancers for surge capacity or specialized skills (lower margin, more flexibility).

The spread between bill rate and pay rate is where agencies make their money. If you don't know this number for every role and every team member, you're flying blind on profitability. Some clients might look like great revenue but generate terrible margins because you're staffing them with expensive senior people at mid-level bill rates.

This metric also drives hiring decisions. When you're deciding between hiring a full-time employee vs. using a contractor, compare the fully loaded pay rate of each against the bill rate you can charge. The employee might cost less per hour but comes with bench risk if utilization drops. The contractor costs more per hour but you only pay when there's work.