Effective hourly rate (EHR) is the real revenue you earn per hour of work, after all the quirks of billing, discounts, agreements, etc. It’s what you actually got paid per hour, not what your price list says.

1. Core definition & formula

At its simplest:

Effective hourly rate = Total Revenue ÷ Total hours

Where:

• Total revenue = what you actually invoiced/recognized for that work (e.g., agreement MRR, T&M invoices, project fees). This is the total billed minus the costs.
• Total hours = the hours you choose to measure against that revenue:
  • Actual hours (all time entered), or
  • Billable hours (only hours marked billable).

Example (very MSP‑typical):

• You bill a client $16,000 for an agreement over a period.
• Your team logs 156 hours of work against that agreement.
• EHR = 16,000 ÷ 156 ≈ $102.56 per hour.

2. How this differs from other “rates”

• Billing rate – your list price per hour (e.g., $150/hr).
• Cost rate or fully burdened cost – your internal cost per hour (wages + tax + overhead).
• Effective hourly rate – what you actually earned per hour once everything shook out (agreements, discounts, write‑offs, over‑delivery, etc.).

Because of that, EHR often ends up lower than your nominal billing rate if:

• You over‑service a flat‑fee agreement (too many hours).
• You discount invoices or write off time.
• Billing is mis‑configured (e.g., revenue not properly tied to agreements).

3. What you typically use EHR for

• Agreement health: “Are we over‑servicing this fixed‑fee client?”
• Client quality: Compare EHR across clients to see who is profitable vs. under‑priced.
• Per‑tech profitability: Look at revenue generated vs. hours worked per technician.
• Pricing decisions: If your EHR for a client or service is consistently below target, it’s a signal to re‑price, adjust scope, or improve efficiency.