Effective Hourly Rate
The service revenue actually earned for each hour of technician labor delivered, across agreements, projects and hourly work.
Formula
Service revenue ÷ Technician hours delivered to clients
Why Track It
A flat-fee agreement is only as good as the hourly rate it works out to. A falling rate on an agreement tells the account manager to reprice or rescope before renewal.
How It Is Measured
Divide service revenue for the period (excluding hardware and software resale) by total technician hours logged against clients in the PSA. Calculate per agreement too: agreement revenue divided by hours logged against that agreement. Exclude internal and training time from the hours.
Constraints
Only accurate if every hour is logged against the right client. Automation that removes labor raises the rate even at the same price, which is correct but can mask declining service.
Measurement Note
Adam Hannemann says $150 per hour should be the floor for hourly rates, with senior technicians or consultants at $200 or more. His figures are in US dollars. The per-agreement view is where flat-fee clients that consume too much labor show up.
Referenced In
- Raising Prices Without Losing ClientsArticle
- Renegotiating a Renewal When Seat Prices RiseArticle
- How Do I Scope and Price a Project?Answer
- How Do MSPs Price Their Services?Answer
- PSA vs RMM: What Is the Difference?Answer
- What Should Technician Utilization Be?Answer
- AYCE (All You Can Eat)Glossary Term
- Billable UtilizationGlossary Term
Related KPIs
- Average Hands-On Time per TicketThe average technician labor time logged against each reactive ticket, as opposed to the calendar time it stayed open.
- Managed Services Gross MarginThe gross margin earned on recurring managed services agreements alone, after the labor and tools needed to deliver them.
- Technician Billable UtilizationThe percentage of a technician's available working hours logged against client work.
- Service Multiple of WagesService revenue earned for every dollar paid in service delivery wages.
Glossary and Answers
More in Finance
The recurring revenue base, the margins it earns and how quickly cash comes in. These numbers tell an MSP owner whether the business is priced right and worth what a buyer would pay for it.
- Adjusted EBITDA MarginOwner
- All-In Seat Price (AISP)Owner
- Days Sales Outstanding (DSO)Finance Lead
- Gross MarginFinance Lead
- Managed Services Gross MarginFinance Lead
- Monthly Recurring Revenue (MRR)Owner
- Recurring Revenue as Share of TotalOwner