Setting an hourly rate by copying competitors is how solo firms quietly lose money. This calculator works backward from your real numbers: total annual cost and the hours you can actually bill, then layers on realization and a profit margin to produce a rate that keeps the lights on and pays you.
How it works
The break-even rate is total annual cost divided by realistically billable hours. A quote rate then adds margin and corrects for collection losses:
total cost = target salary + total annual overhead
break-even = total cost / annual billable hours
with margin = break-even / (1 − profit margin)
quote rate = with margin / realization rateDividing by (1 − margin) adds the margin as a markup on cost, and dividing by
realization grosses the rate up so that the amount you actually collect still
hits your target.
Worked example
A solo practitioner targeting $120,000 in salary with $80,000 of annual overhead (office, malpractice insurance, bar dues, software, marketing):
| Input | Value |
|---|---|
| Target salary | $120,000 |
| Annual overhead | $80,000 |
| Total cost | $200,000 |
| Annual billable hours | 1,400 |
| Break-even rate | $143/hr |
| Profit margin | 15% |
| Realization rate | 90% |
| Quote rate | ≈ $187/hr |
At $187/hr with 1,400 billable hours and 90% collection, you bring in about $235,000, retain $35,000 as profit, and cover $200,000 in costs. If you had set $150/hr based on what competitors charge, you would collect roughly $189,000 — $11,000 below cost.
The billable hours problem
The most common mistake in fee-setting is overstating billable hours. A solo practitioner working 2,200 hours a year may only bill 1,200–1,500 of them. The rest is absorbed by:
- Business development and marketing
- Administrative work (invoicing, file management, email)
- Non-billable client time (brief calls, relationship maintenance)
- Continuing legal education and practice management
- Unbillable preparation for matters that do not proceed
Use your actual billed hours from the previous year, not your total worked hours. If you are a new solo without data, 1,200 hours is a conservative estimate; 1,500 is achievable with good discipline.
What to include in overhead
All firm costs except your salary: malpractice insurance, bar dues, CLE, legal research subscriptions, practice-management software, office rent or home-office allocation, marketing, accounting, any staff or virtual assistant, phones, and professional development. If you are unsure, list every monthly bank statement line item and sum anything that is not your take-home pay.
Using the rate for flat-fee pricing
Even if you move to flat fees, this break-even hourly rate remains essential. To price a flat fee profitably, estimate the hours a matter will consume and multiply by your break-even rate (or quote rate for a margin). If the resulting flat fee is above market, you either need to systemise the work to reduce hours or accept that the matter is below-cost at market rates.