capacity utilization · sub margin · rev/hr comparison

hiringratesgrowthfreelancesubcontractorcapacityrevenue-per-hour

//// Business · Freelance Growth

Raise Rates or Hire Calculator

The decision most contractors get wrong: raise rates or hire a sub? Compare revenue per hour of your time for both paths — with sub margin analysis, capacity utilization, and a recommendation based on your actual numbers.

Corp Tax Rate21%(federal flat rate)

SE Threshold$400(net earnings floor)

FICA Cap 2024$168,600(SS wage base)

Current State

Monthly revenue

Billable hrs/month

hrs

Current hourly rate

$/hr

Max hours/monthYour capacity ceiling

hrs

Capacity utilization80%

Option A — Raise Rates

Proposed new rate

$/hr

Expected client retention% who stay at higher rate

Option B — Hire / Subcontract

Subcontractor cost

$/hr

Hours delegated/mo

hrs

Your management overheadhrs managing the sub

hrs

Recommendation: Hybrid Approach

You're close to capacity (80%). Consider a hybrid: raise rates on new clients while testing subcontracting on lower-value work. Both paths improve your revenue per hour of personal time.

Current Revenue/Hr

$150.00/hr

80 hrs/mo

Option A Revenue/Hr

$180.00/hr

After rate raise

Option B Revenue/Hr

$168.10/hr

Net / your hours

Sub Margin

50%

On delegated work

Current

$12,000/mo

Your hours80 hrs

Revenue / your hour$150.00/hr

Margin100%

Option A — RaiseBetter

$10,800/mo

Your hours60 hrs

Revenue / your hour$180.00/hr

Margin100%

Option B — Hire

$9,750/mo

Your hours58 hrs

Revenue / your hour$168.10/hr

Sub cost−$2,250

Margin81%

Break-even sub rate: at $40.00/hr for the sub, Option B net revenue equals Option A revenue. Your sub rate is above break-even — raising rates currently wins.

Option A — Raise rates revenue

new_rev = billable_hrs × retention% × new_rate

80 hrs × 75% × $180.00/hr

= $10,800/mo

You work 60 hrs at $180.00/hr effective.

Option B — Hire: net revenue

net_rev = (all_hrs × rate) − sub_cost

(80 × $150.00) − (30 × $75.00)

= $9,750/mo

Option B — Revenue per your hour

rev_per_hr = net_rev / (direct_hrs + mgmt_overhead)

$9,750 / (50 + 8) hrs

= $168.10/hr

Sub margin on delegated work

margin = (your_rate − sub_rate) / your_rate × 100

($150.00 − $75.00) / $150.00

= 50%

30%+ margin justifies hiring. Below 30%, raise rates first.

Key insight

Revenue per hour of YOUR time is the key metric — not total gross revenue. A solo contractor billing $15k at 80 hrs/mo ($187/hr) beats a contractor billing $20k but managing a sub for 50 hrs + 20 mgmt hrs ($286/hr net, but only if sub margin holds). The breakeven analysis tells you exactly when hiring pays off. Most contractors should raise rates 1–2 times before considering subcontracting.

Use this result in →

Pricing Strategy →Overhead Rate →Subcontractor vs Employee →

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