Average Billable Rate (ABR) is a financial metric that represents the average amount of revenue generated per hour of client work. Sometimes referred to as an Effective Hourly Rate (EHR) It reflects the average rate an agency earns when delivering services that are charged to clients, and is typically used as a simple way to assess pricing strategy, team efficiency, and service profitability.
ABR is calculated by dividing total Agency Gross Income by the number of Delivery hours worked in a specific time period.
Formula:
ABR = Agency Gross Income / Delivery Hours
Why it matters for agencies
ABR is a core profitability metric that helps agency leaders evaluate how effectively their services are being priced and delivered. It gives valuable insight into team performance, expected vs actual efficiency, and what kinds of clients and projects are most efficient at earning revenue.
Here’s why ABR is important:
- Clarifies pricing effectiveness: Helps you determine what you’ll actually earn after taking to account pass-through expenses, and all the time required to service a client.
- Enables simple comparison: Evaluates performance across clients, projects, products, service lines, departments, or any other segment of your firm.
- Guides hiring and compensation: Helps align salaries and compensation models with revenue output.
- Supports strategic planning: Informs which service lines are most profitable or scalable.
- Improves client segmentation: Identifies high-value versus low-value client accounts.
How to optimize
Improving Average Billable Rate starts with clear pricing strategies, time discipline, and client management. Here are a few ways agencies can raise ABR:
- Review pricing Margins regularly: Ensure the ABR you’re expecting from your pricing is setting you up for a healthy margin relative to your Average Cost per Hour. As a best practice, aim for a 70%+ margin between your ABR and ACPH.
- Manage discounting: When discounting is needed, ensure the impact on expected ABR is clear.
- Abstract pricing from hours: Shifting to abstracted time-based billing models, or flat, productized & value-based pricing can help you increase your ABR by allowing you to earn the same revenue in less time, or charge more for the same scope.
- Train teams on client communication: Help client-facing staff articulate the value of the work, handle scope creep and manage over-servicing.
- Manage scope-creep: Be proactive in managing expectations and adjusting scope when clients ask for additional deliverables and revisions during projects.
- Avoid over-servicing: Be mindful of investing too many additional hours into unnecessary work on client projects.
Maintaining a high ABR is key to achieving strong gross margins and building a sustainable agency model.