How much a developer hour really costs

We’ll break down both numbers separately — the mistake usually hides in both at once.

Salary isn’t cost

An engineer on a $60,000 salary costs your studio well over $60,000. On top of salary come employer taxes and mandatory contributions, benefits, hardware and software licences, and a share of office and operating overhead. And above all — paid time you’ll never bill a client: holidays, vacation, sick days, stand-ups, training, internal work.

Miss any of these pieces and every margin number down the line comes out inflated. Hourly cost isn’t an accounting formality — it’s the anchor number for the whole studio’s economics: project margin, the minimum rate and the floor of any fixed-price quote all start here.

What goes into the fully-loaded hourly cost

The fully-loaded annual cost is everything hiring this person costs your studio over a year:

• Salary (gross)
• Employer taxes and mandatory contributions
• Benefits, hardware, software licences
• Share of office and operating overhead
• Paid but non-billable time: holidays, vacation, sick days

In practice the markup on salary is 35–50%. Take a conservative estimate:

And this number is different for every role. A senior on a $90,000 salary works out to roughly $84 an hour at the same utilization; a junior at $35,000, to about $33. That’s why a single “studio average rate” is dangerous: it hides who actually earns the margin and who works at break-even.

Divide by billable hours, not calendar hours

This is where most owners slip. A work year has about 2,080 hours, but you won’t bill the client for all of them. Subtract holidays and vacation, sick days, stand-ups, onboarding, internal work and admin — and the genuinely billable hours land closer to 1,500. That’s what you divide the full cost by.

Divide by the calendar 2,080 out of habit and you get about $40 — understating your cost by nearly a third. The same mistake in reverse: dividing the bare $60,000 salary by 2,080 gives a “comfortable” $29 that has nothing to do with reality.

The share of billable hours in your total time is called utilization, and it moves your hourly cost directly: the lower the utilization, the more expensive each billable hour becomes — at the same salary. So the denominator can’t be a guess; utilization should be measured from actual hours. More in the breakdown of billable vs non-billable hours.

What this number changes in fixed-price quotes

Once you know your hourly cost, a fixed-price quote becomes arithmetic: estimated hours × fully-loaded cost = your floor in money. Everything above is margin; everything below is a loss you agreed to in advance, before the project even started.

Example. You bill this engineer to the client at $90 an hour. Gross margin on their time is about (90 − 56) / 90 ≈ 38%, and that’s before any project overruns. Cut the rate to $65 “to win the deal” and you’re left with ~14%, where any overrun pushes the project into the red. And $50 — which looked generous on the salary calculator — is actually below cost: at that rate you’re paying the client for the privilege of working.

Tie hourly cost to live project margin and you stop discovering deals like these after the fact — in the quarterly report, when nothing can be changed.

Overtime quietly raises your hourly cost

Overtime on a salaried engineer looks free — the salary is fixed, after all. It’s an illusion. Overtime eats capacity that could have been billable, and on fixed-price projects it hits margin directly: the work got done, the time was spent, it never made it into the estimate. If the team regularly works overtime, your honest 1,500 hours stretch across more work — and the real hourly cost creeps up, even if the table still says $56. Counting overtime is the difference between the real number and a flattering one.

A practical consequence: revisit your hourly cost at least once a quarter. Salaries rise, the team mix changes, utilization dips — and the old number is already lying, and with it every estimate that leans on it.

Five mistakes that make hourly cost lie

The number usually breaks in the same few places. A quick checklist to test yourself:

• Dividing by calendar hours. 2,080 instead of ~1,500 understates cost by nearly a third.
• Forgetting overhead. Rent, software, hardware and admin staff are part of every billable hour too.
• Treating overtime as free. It doesn’t show on a salaried payslip, but it eats billable capacity.
• Confusing the client rate with cost. $90 on the invoice and $56 in cost are two different numbers; margin lives between them.
• Using one “studio average”. A junior and a senior cost differently; averaging hides the loss-making roles.

See your hourly cost and margin in real time

You can work all this out in a spreadsheet once a quarter. The trouble is that by the time you do, the loss-making deal is already closed and delivered. AltOrbit keeps salaries, taxes and overhead in its cost model and recalculates margin in real time as the team logs hours — no screenshots, no click counters. You see hourly cost and margin per project while you can still act on them; how it works is in features.

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