What is an hourly rate?
An hourly rate is the simplest price in the business: this person, for this hour, costs this much. Freelancers quote them. Agencies set them for each role or seniority level, sometimes as a single blended rate for a team, and use them to build estimates, bill time-and-materials work and size retainers. The rate is meant to cover the loaded cost of the person (salary, benefits, tools, a share of overhead) plus the margin the business needs, which is why an agency's hourly rate is well above the person's wage.
Rates vary with role, seniority and market. The creative director's hour and the junior editor's hour are different products, and both are priced differently in New York from the way they are priced elsewhere.
Why it matters
Why hourly rates matter
Even agencies that never bill by the hour need them, because the rate is how a scope becomes a number. Estimate the hours, apply the rates, add the hard costs, and the project price appears. Get the rate wrong and every estimate is wrong in the same direction. For clients, the hourly rate is the most comparable number across agencies and the least useful one: it says what an hour costs and nothing about how many hours the work will take or how good they will be.
The rate also sets behavior when it is the billing unit. Hourly billing rewards time spent, which is not the same as value delivered, and clients who buy by the hour tend to ration the conversations that make the work better.
In practice
How hourly rates work in practice
- 01
Internally, the agency calculates the loaded cost of each role, adds overhead per billable hour and the target margin, and arrives at a rate per role or a blended rate for the team. On an hourly or time-and-materials job the rate is agreed in the contract, hours are logged and reviewed, and the invoice shows hours times rate with the timesheet attached. On a fixed-fee job the rates stay internal and produce the estimate.
- 02
The rate is revisited at least annually, when salaries, overhead and the market have moved, and the estimate-versus-actual review on closed jobs shows whether the rate and the hours were right.
At RIOT
Hourly rates at RIOT
We know what our time costs, because we have to. We do not sell by the hour, and we do not have a rate card to send. A project is scoped first, and the plan and number that come back within a couple of business days price the work as a whole. The number of hours a better edit takes is our problem, not the client's.
Watch out
What people get wrong about hourly rates
Comparing them across agencies as if they were the price of the work. A higher rate from a senior team that gets it right in a week beats a lower rate from a team that takes a month and three rounds of fixes. The other mistake is on the agency side: setting the rate from what competitors charge instead of from what the business costs, and discovering the gap at year end.
