Guide
If you bill clients for time, these two numbers determine whether you're actually making money — not just how busy you are. Here's what each one means and how they work together.
Internal number
What an hour of someone's time costs your business. For an employee or contractor, this is usually derived from salary or pay plus overhead, divided by billable hours available. For a freelancer, it's the hourly cost of running your business and your time.
Client-facing number
What you charge the client for an hour of that same work. This is the number that appears on the invoice. It's set based on market rates, the value of the work, and what your business needs to charge to be sustainable.
Worked example
A designer has a cost rate of £30/hour and bills clients at £75/hour. They log 20 hours on a project this week.
Revenue
£1,500
20h × £75
Cost
£600
20h × £30
Margin
£900 (60%)
(Revenue − Cost) ÷ Revenue
The gap between cost rate and billing rate is where your margin lives. Track only billing rates, and you'll see revenue without knowing if it covered your costs. Track only cost rates, and you'll never know if you're charging enough. You need both, tracked against the same hours, to see the real picture — which is exactly why most teams end up doing this in a spreadsheet after the fact. The alternative is having rates attached to the work as it happens, so margin is always current.
Tideflow lets you set a cost rate and billing rate at the account level as a sensible default, then override either one at the client, project, or task level when a specific engagement needs a different number. As soon as time is logged against a task, both rates apply automatically — there's no separate step to "calculate" margin afterwards.
Frequently asked questions
A cost rate is what an hour of someone's time actually costs your business — typically derived from salary, contractor pay, or your own target hourly cost as a freelancer. It's an internal number; clients never see it.
A billing rate is what you charge the client for an hour of work. It's the number on the invoice. Billing rates are often higher than cost rates to cover overhead, profit, and risk.
Yes, and usually they are. A developer might have a cost rate of £35/hour internally, but bill out at £85/hour on a client project. The difference between the two, multiplied by hours worked, is your gross margin on that work.
Yes. Even as a solo freelancer, your time has a cost — what you'd need to earn per hour to hit your income goals after accounting for non-billable time, taxes, and overhead. Without a cost rate, "profitable" is just a guess.
Tideflow lets you set a cost rate and billing rate at the account level as a default, then override either at the client, project, or task level. The most specific rate always wins, so exceptions don't require changing your defaults.
Related reading
The formula, a worked example, and the mistakes that distort the number.
Read moreWhich one tells you if the work was profitable.
Read moreProject management software for agencies that need to protect margin.
Read moreSee it for yourself
Request early access to see cost and billing rates applied automatically as time is logged.
