Blended rate is a pricing model where an agency charges one rate that encompasses multiple people, roles or types of work. Instead of billing different rates for each individual component of a project, the agency applies one consistent rate across all work performed.
This rate is often calculated based on the weighted average of all the roles expected to contribute to a project; however, it can also be set in a way that is somewhat abstracted from pre-existing rates or costs.
Blended rates can offer simplicity and transparency for clients and can streamline internal billing processes. It can also help firms improve their margins by either increasing their average rate and/or maintaining a similar rate while leveraging lower cost labor.
Example: If a project will involve junior staff at $100/hr, senior staff at $200/hr, and mid-level staff at $150/hr, a blended rate might be set at $160/hr across the board.
Why it matters for agencies
Blended rates offer both operational and client-facing benefits. They can make proposals easier to understand and reduce friction in the sales process. Internally, they can create the opportunity for higher margins and simpler internal billing, reporting, and forecasting processes.
Key reasons to use a blended rate model:
- Simplifies pricing for clients: One flat rate is easier to explain and approve.
- Improves budgeting accuracy: Encourages better alignment between sales and delivery.
- Streamlines billing: Reduces administrative complexity in time tracking and invoicing.
- Increases flexibility: Enables dynamic team allocation without needing to renegotiate rates.
- Protects margin strategically: Encourages internal optimization of staffing to improve profit.
How to optimize
While blended rates are convenient, they must be calculated carefully to avoid underpricing. The goal is to ensure the blended rate covers all labor costs and overhead, while delivering a healthy margin.
Here’s how to optimize your blended rate model:
- Set rates with margin in mind: Remember that your Average Billable Rate (ABR) should generally be at least 3x your Average Cost Per Hour (ACPH). Your blended rate should set you up to consistently achieve this ratio, which should translate to a ~70%+ margin, leaving enough room to cover overhead and other indirect costs.
- Monitor ABR and ACPH: Regularly compare the blended rate to Average Billable Rate and cost per hour to spot margin issues.
- Revisit regularly: Recalculate blended rates as team structures, salaries, or scopes evolve.
- Communicate value: Frame the blended rate as a benefit to clients—simplicity and flexibility with predictable costs.
A well-set blended rate can boost win rates, simplify operations, and increase client satisfaction—without sacrificing margin.
Resources to Explore
- The Ultimate Guide to Understanding Agency Billable Rates
- Agency Profitability Toolkit – Parakeeto
- https://parakeeto.com/blog/understanding-and-optimizing-your-agency-rate-card-a-comprehensive-guide-for-digital-service-providers/
- https://parakeeto.com/blog/how-to-accurately-calculate-your-agencys-billable-employee-cost-per-hour/