The Importance of Maintaining Your
Average Earn Rate
A firm’s earn rate is a critical indicator of financial health, yet it’s often overlooked or misunderstood. Earn rate refers to the revenue generated per charged hour and is calculated by dividing the total dollars charged to clients by the total charged hours. This figure reflects revenue before invoicing and differs from the recovery rate, which accounts for write-offs and collected revenue.
For accuracy, it’s worth noting that an average charge rate may not align perfectly with a firm’s earn rate, as various factors influence the actual revenue generated, such as how and by whom work is completed. Using a weighted average for these calculations provides a more precise picture of performance.
Here are three trends currently shaping earn rates and revenue in professional firms:
1. Outsourcing
Outsourcing has gained traction as a cost-control measure and a solution for managing workloads. While it can reduce expenses and provide access to additional resources, it’s important to assess its impact on revenue generation. Personnel in outsourced roles often have lower hourly charge rates, and when firms rely on time-based billing, this can reduce fees charged to clients, thereby affecting the earn rate.
2. Pre-set or fixed fees
Firms moving away from hourly billing in favour of pre-set, fixed, or agreed-upon fees must ensure these fees remain competitive and reflective of the value provided. This becomes especially important when leveraging outsourced personnel or when service costs fluctuate
3. Cloud computing and software efficiencies
The rise of cloud-based tools has transformed many firms, streamlining processes and increasing efficiency. However, there’s a risk that firms may pass on too much of these cost savings to clients or fail to regularly review and adjust fees to reflect the value provided. Over time, such practices can erode the firm’s revenue and earn rate.
These trends are interconnected, and their combined effects can significantly influence a firm’s financial position.
4. Underutilisation of Staff
When team members are underutilised—whether due to poor workflow planning, inconsistent client demand, or inefficient task allocation—their time isn’t being converted into billable value. Even highly skilled staff working below their capacity can negatively impact the overall earn rate if their chargeable time is diluted by administrative or low-margin work.
5. Ineffective Pricing Strategies
Pricing that fails to reflect the true value of services, industry benchmarks, or rising operational costs can directly drag down your earn rate. Many firms continue to rely on legacy rates or match competitor pricing without fully considering their own cost structures or positioning. Regularly reviewing and adjusting your pricing model is essential to protect and grow your revenue per charged hour.
While many firms are under pressure to reduce fees, it’s important to recognise that fee reductions aren’t the only risk to earn rates. Even if fees remain steady, operational changes – such as those driven by outsourcing or software efficiencies – can shift the balance. Maintaining a clear understanding of your earn rate and its drivers ensures your firm can adapt to changing conditions without sacrificing profitability.
To thrive, firms should regularly evaluate pricing strategies, monitor the impact of operational changes, and remain vigilant about the value they provide to clients. By doing so, you’ll not only safeguard your earn rate but also position your firm for sustainable growth.
One of the most effective ways to evaluate and strengthen your firm’s financial position is by benchmarking against industry peers. Our detailed benchmarking reports give you real data on fees, charge rates, profitability, and operational performance—so you can identify where you stand, where to improve, and how to future-proof your earn rate.
Protecting Your Earn Rate
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Price range: $495 through $1,265 incl. GST
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Price range: $385 through $770 incl. GST
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Price range: $198 through $396 incl. GST
With over 50 years of experience, Rob Knights & Co provide expert benchmarking and consulting services tailored to meet your unique needs.
Contact us today to discuss how we can support your firm’s performance.
