The Agency Blogger
Agency Management & Controlling
Smart in 60 Seconds! Today: The Internal Hourly Rate
A new post in our "The Agency Bloggers" series, which regularly explains the most important terms used in agency controlling in a short, brief and practical definition. Today's focus: the internal hourly rate
Calculating the internal hourly rate enables an agency to answer the question as to the turnover that it needs to generate in order to cover its human resources costs and general operating expenses. It is therefore an important basis for the calculation of the external hourly rate (which will be covered here in more detail soon).
The formula used to calculate the internal hourly rate can be simplified as:
Gross annual salary costs + assignable additional expenses per year
Available working days per year * daily target
A company car is an example of assignable additional expenses. The number of available working days is the number of working days remaining after weekends, public holidays and estimated days of absence/sickness have been deducted. The daily target is specified in hours. Two different bases of assessment are available, namely either using the working hours contractually agreed for each member of staff or choosing the average number of hours actually worked per day.
The daily average based on the actual number of hours worked, which leads to more realistic results, can be easily determined using a full-time recording tool in agency software. This will also reveal the fluctuations caused by the different agency workloads. These fluctuations are incidentally also the reason why the basis used for the calculation of the internal hourly rate may indeed change.