Divide invoiced hours by total working hours
Billable utilization is the share of working time that reaches a client invoice. If you work 40 hours and directly bill 28, your utilization is 28 / 40 = 70%. The other 12 hours are not wasted. They may fund proposals, discovery calls, bookkeeping, scheduling, skill development, marketing, and the systems needed to deliver paid work.
For rate planning, use total business hours in the denominator, not only time spent delivering. Then apply the ratio after removing full weeks off. This converts a theoretical 2,080-hour year into capacity you can realistically sell.
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Worked example: 28 billed hours inside a 40-hour week
A freelancer records 28 hours tied directly to client invoices and 12 hours of operating work. The weekly utilization is 70%. With four weeks off, annual billable capacity is 48 x 28 = 1,344 hours.
If the business needs $120,000 of annual revenue, dividing by 1,344 produces an $89.29 hourly floor before rounding. Dividing the same revenue by all 1,920 working hours produces $62.50. That shortcut is $26.79 lower for every hour the client buys because it assumes the 12 weekly operating hours will somehow be funded elsewhere.
Build a utilization ratio from your calendar
Choose a representative period, usually four to eight recent weeks. Record total time spent on the business, then mark hours that can be tied to an invoice under the client agreement. Keep sales calls, proposal writing, internal administration, bookkeeping, unpaid revisions, learning, marketing, and gaps between assignments in the total but outside the billed count.
Calculate each week separately before finding the period average. This reveals whether one launch week or vacation distorted the result. If your work is project-priced, allocate delivery hours to each completed project even when the invoice does not list hours. The goal is operational capacity, not a billing-system label.
Do not treat utilization as a productivity score
A higher ratio is not automatically better. A solo consultant with complex sales, research, or product development may need substantial non-billable time. A subcontractor receiving a steady stream of assigned work may sustain a higher ratio. The number describes a delivery model, not effort or professional value.
There is no universal correct percentage. RateFloor uses 70% as an editable illustration, not an industry claim. Prefer your trailing records when available. If the sample is short or your pipeline is unstable, compare a lower risk-buffered ratio with your base case in the scenario planner.
Sources and limitations
This guide defines utilization for RateFloor pricing decisions. It is not an accounting standard and does not determine whether time is legally billable under a contract. Your agreement controls what a client can be charged. Your own time records are the primary evidence for the ratio.
- RateFloor methodologyFormula order, validation boundaries, rounding, and review policy.
- Salary conversion guideHow capacity interacts with the revenue side of a freelance rate.