How To Calculate Agency Hourly Rates & Craft a Winning Rate Card

Alright, agency owner, come closer and let’s talk about the one thing you (and I) love to hate: agency hourly rates.

Don’t act like you don’t know what I’m referring to. Those *magical* numbers make clients want to open their wallets or jump out of the nearest window.

Calculating agency hourly rates is like finding the Holy Grail, but instead of knights, you deal with spreadsheets, profitability reports, and profit margins. It seems easier to find the Holy Grail, doesn’t it?

But don't worry; we’re here to guide you through the entire process.

Let’s make you a pro at developing rate cards so that even your accountant is in awe. 😉

So, try focusing for 15 minutes to read this article, grab a calculator, your 7th espresso shot, and let’s see how you can charge what you’re worth AND not scare clients away.

Let’s roll.

What is an agency rate, and why is it important?

An agency rate is the fee you charge as an agency for your business, and its services, and it’s typically expressed in the form of an hourly rate. Setting these rates is essential, as they directly affect your agency’s profitability, competitiveness, and sustainability.​

Here’s what I mean by that:

• Your agency must generate a reasonable profit (duh!), and it can do that only if you ensure that set rates cover all operational costs. And numbers prove this. According to an Elevation Marketing 2024 report, full-service marketing agencies in the U.S. charge blended hourly rates between $165 and $225, with top-tier markets pushing up to $250/hour. This includes strategic, creative, and executional work across departments — hence the higher average. But not all agencies operate at that scale or scope.
• A MarketingSherpa analysis shows that digital marketing agencies average $82.66/hour, with a median of $84.40 — this reflects a more mixed market — including smaller, specialized teams.
• And of course, pricing isn’t just about math — it’s about perception. Set your rates too high without clear value, and clients may walk. Set them too low, and you risk undervaluing your work and underpaying your team — which impacts morale and output.

So, how do you get hourly rates right? Once you know what factors to consider—I’m talking costs, market rates, and client expectations—you can use them to calculate hourly rates that make sense for your business.

It’s a piece of cake, right?!

Wrong.

Determining the right rates is so difficult because you need to align multiple factors with your own internal financial goals.​

And the list of factors to consider just goes on and on.

Here’s another list of influences you should take into account:

• There are regional variations in rates. As you know, agency rates vary significantly across regions: in the US, branding agency rates average $116 per hour, with states like New York charging $160 per hour and California $108 per hour.
• To make things trickier, rates also vary based on the services offered. For example, social media advertisers typically charge between $100 and $149 per hour, with monthly retainer costs ranging from $900 to $20,000 when working with agencies. 
• There are different pricing models. Hourly rates are the most common, but some agencies prefer pricing models such as fixed-fee, value-based, or performance-based pricing. Each model has its advantages and considerations (more on that later in the article).

What happens if you don’t calculate agency hourly rates properly?

Ugh. Where do I even begin?

You can face the following issues:

• Inflated utilization rates. Agencies fall into the trap of inflating their utilization rates (the percentage of time that billable work is relative to non-billable time). Sure, the idea is to maximize billable hours, but that can lead to overpromising on deliverables, unrealistic expectations, and burnout among team members. If utilization is pushed too high, it affects quality of the work and lowers client satisfaction. For you, an agency owner, inflated utilization rates mean higher employee turnover and lower profitability.
• Overservicing clients. Overservicing suggests providing more work than the client has paid for because you are pressured to go above and beyond to retain clients. It might seem like a good short-term idea, but consistently overservicing can quickly affect your agency’s margins. This means that if your agency works for less than it’s worth, it leads to financial losses (and dissatisfaction among staff). Overservicing becomes even more problematic when it’s not reflected in the rate card, so you, as an agency owner, find yourself caught between what you’ve promised and what you can deliver without compromising financial health. Tough situation.
• Poorly calculated rates lead to losses. Setting rates that don’t go above overhead, labor costs and market rates is not going to cut it. You also can’t underestimate the time and resources needed for a project, as that leads to quoting too low of a rate. If your agency doesn’t regularly review and adjust its rates to reflect changing costs, your team will constantly work below capacity to make ends meet, even if you work with multiple clients. This miscalculation results in profits shrinking over time, meaning you won’t be able to maintain a healthy cash flow or grow in the future.

Now that you know how improperly calculated hourly rates can ruin your business, hopefully, you understand that hourly rates are the foundation of long-term success. They require regular adjustments and an understanding of the agency's actual costs.

But how do you calculate agency hourly rates?

Glad you asked.

The step-by-step way to calculate your agency’s hourly rate

Here’s a 5-step, foolproof way of calculating hourly rates.

Step #1: Define your pricing model

Before calculating hourly rates, decide on the type of pricing model that works best for your agency. We’ve written all about choosing an agency pricing model, but if you don’t have time to skim through that post as well, here’s a breakdown of the most common options:

• Hourly rates are when you charge clients by the hour for work performed.
• Fixed fees are when you set a set price for the entire project, regardless of time spent.
• Value-based pricing is when your pricing is based on the value you provide to the client rather than the time spent.
• Retainers suggest ongoing, regular payments for a set scope of work over a period.
• Performance-based pricing means pricing based on the results or performance achieved.

If you’re unsure about choosing the right pricing model, just follow the CAP acronym. Here’s how it works:

• C ー Clients. Think about which models will make the clients feel the most comfortable.
• A ー Achievements. Think of the value of what you want to charge for: man-hours, completed projects, deliverables, etc.
• P ーProfitability. Think of what is best for your company’s profitability.

Step #2: Understand your costs so you can define margins

Try to fully understand your agency’s fixed and variable costs to determine a decent rate (you can adjust later). These are the costs you should factor in:

Now, let’s talk about profit margins.

Profit margins are financial metrics that show how much of your agency’s revenue is left after covering expenses. They’re expressed as a percentage and help measure how efficiently a company is running and how profitable it is.

So, for example, here’s what a Gross profit margin formula looks like:

(Revenue - Cost of sold services) / Revenue x 100

This formula tells you how much profit an agency makes from selling services before other expenses (like rent, salaries, etc.).

To fully understand profit margins and how they relate to profitability, I highly suggest you check out our Profitability Reporting Template.

This template is designed to help you track and analyze the profitability of your projects by delivery hours and associated costs.​ Here are the key points of the template:

• Project and client tracking means you can list various projects with their respective clients, allowing for organized work tracking.​
• Delivery hours tracking means you can record the total hours dedicated to each project, broken down by team members.
• Internal work monitoring includes a section for internal tasks so you can assess time spent on non-client-related activities.​
• Utilization rates and costs. The template contains additional sheets like Team Sheet (Utilization Rate) and Projects (GI/h & øCost/h) to evaluate team efficiency and average costs per hour.​
• Delivery margins analysis features a Delivery Margins sheet to calculate profit margins for each project.​

This template serves as a foundation so you can monitor projects’ profitability, optimize resource allocation, and make informed financial decisions.

Now, let’s hang on a second, and discuss delivery hours.

They’re at the heart of this template because accurately capturing delivery hours is essential for understanding where your team’s time goes, how projects are performing, and whether your agency is operating profitably.

But here's the thing: manually tracking time is a pain, and it’s not going to cut it. It’s inconsistent, inaccurate, and a chore everyone avoids.

That’s where Memtime comes in.

Memtime is our automatic time tracking tool designed for agencies.

It works silently, in the background, recording everything your team works on—meetings, documents, tools, emails—without any manual input.

Your team doesn’t have to guess or reconstruct their workdays at the end of the week because Memtime provides exact timelines of their activities, making it easy to assign time to the right projects and tasks.

Here’s why Memtime is the only time tracking tool you should use:

• Memtime tracks your activity and displays the program name, details, and time you spent using it. The tool arranges all activities in a chronological timeline, the Memory Aid.

• Your time data captured by Memtime is visible ONLY to you, and stored locally on your computer. No one has access to it, especially not your clients.
• If you want to visualize how your day went, you can zoom in and out and see your work in 1-60 minute intervals.
• Then, you can decide which activities to log as time entries and sync them with projects in your project management software.
• In fact, Memtime integrates with over 100 apps, allowing a 2-way sync so you can import projects and tasks into Memtime and then export time entries back to those projects and software.
• Memtime is a desktop app available for Windows, Mac, and Linux.

It takes less than 10 seconds to create a Memtime account using just your email so you can download and install the app.

We have a 2-week free trial so use it wisely. And if you like it, we can schedule a quick call and discuss what Memtime can do for your team specifically.

Even in your trial period, you’ll be able to:

Step #3: Determine team member rates

Depending on your agency’s structure, you’ll probably set different rates for different roles. So, be sure to think of:

• Beginners or less experienced team members—they’ll have lower rates.
• Seniors, managers, and experienced professionals will most likely command higher rates.
• Experts or specialists (e.g., developers, strategists, consultants) often warrant higher rates.

Step #4: Account for other factors, like market rates

By now, you should have an idea on what agency hourly rates should be.

So, it’s time you compare your calculated rate with the average industry rates. After all, you don’t want to be priced out of the market, but you also don’t want to undervalue your work. 

So, research competitors, survey industry benchmarks, and consult industry reports to find market expectations for rates.

Also, account for additional factors like:

• You can set higher rates if your team works only on complex projects requiring high-level expertise.
• If you partner with large corporations or well-funded startups, you can set higher rates, as such companies may be willing to pay more than SMBs or non-profits.
• If you work on urgent projects that require extra hours or resources, you can add a premium to the rate.

Step #5: Review & adjust your rates

After calculating your hourly rate, make it a habit to revisit and adjust it regularly: 

The last step? Communicate the value

Once you’ve calculated your hourly rates, you need to ensure you can clearly communicate the value that clients are receiving. After all, you need to justify your rates and make clients feel confident in their decisions.

You can do so by:

• Creating a rate card. You should design a simple, clean document (PDF or webpage) that includes role-based rates (e.g., Senior Designer - $130/hr), service-based rates, day rates, project rates, and retainer bundles.‍
• Make the rate flexible and strategic. Offer discounts for retainers or volume work, charge rush fees, after-hours rates or consider value-based pricing when appropriate.
• Align your pricing model with your agency’s goals and client relationships. Fit your approach to the needs and structure of your business. No matter if you charge by the hour, by project, or on a retainer basis, make sure your pricing reflects the quality, expertise, and impact of your work.‍
• Explain the why behind your rates. When discussing your rates with clients, provide context about how they reflect your agency’s expertise, time, and the value delivered. This helps clients understand that they’re NOT just paying for time but for results, innovation, and specialized skills.
• Highlight ROI. Focus on the return on investment (ROI) that clients can expect from your services. This could include tangible outcomes like increased revenue, cost savings, improved brand awareness, or higher customer engagement. The clearer you can make the connection between your pricing and the value they will gain, the easier it will be for clients to justify the expense.‍
• Use case studies and testimonials. Share examples of how your work has impacted other clients. When prospective clients see success stories and hear from satisfied customers, they will have confidence in the value you’re offering.

Wrapping up

You’ve made it to the end of this article. You deserve a “kudos to you, mate”.

Hopefully, now you know you don’t have to guess hourly rates or overpromise, and you definitely don’t have to work for peanuts. 🥜

Knowing how to calculate your rates properly makes the difference between a profitable agency and one drowning in underpaid projects.

So, go ahead. Update that rate card, show clients the ROI, and make them feel they’re getting much more than they could’ve ever asked for. Good luck! 🍀