Agency Basics - Profit = Revenue - Cost

Basic, quick equation for figuring out costs. (This short cut is, well, a short cut. Go use a real accountant).

Profit = Revenue - Cost

Profit is calculated by taking your billable hourly rate multiplied by how many hours work and subtracting your fixed overhead costs plus your cost per hour for an individual.

P = Profit
R = Revenue (in this case your actual billable hourly rate)
C = Fixed cost (your overhead) + Hourly Cost (hourly amount it is costing you for the individual)
And let x = # of hours worked

So to figure out how much profit you would make on an individual that you bill @ $200 an hour, but costs you $100 an hour and has a fixed overhead cost (i.e. annual portion of rent, equipment, utilities, etc divided by the number of employees) for the individual would be (imaginary value, say your overhead / break-even is 100,000 and four people are in your shop so one person's cost equals) "C" or 25,000, the equation would be;

P = 200(x) - 100(x) - 25,000

Your profit would on the individual would then equal $100 an hour multiplied by how many hours worked, subtracted by your fixed costs.

Thus if the person worked 1600 hours;

P = 200(1600) - 100(1600) - 25,000

P = 320,000 - 160,000 - 25,000

Total profit = $135,000.

Flip through the site for more articles and charts for calculating hourly rates.