“If you want to earn more, you need to understand what you’re worth—economically—not just emotionally.”
I recall the first time an employee came to me and asked, “What do I need to do to earn $ 100,000?” It seemed like a simple question, but the right way to answer reveals a profound truth about value, contribution, and business sustainability. In the early days of the agency, we did not have a set formula for contribution value or even if that salary was profitable. We paid people what we thought they should earn based on our budget.
My fifth epiphany of understanding an employee’s contribution value came into sharp focus when my first agency was acquired by WPP and integrated into Y&R. Their internal models were, at the time, frustratingly rigid. They evaluated each employee based on a simple ratio: expense-to-revenue. How much did it cost to employ someone, and how much revenue did they generate? That seems pretty cold, but it is the reality of any profitable company. That ratio changed how I viewed everything, and this factor impacts your agency’s profitability. This is why your company must understand each employee’s utilization rate to ensure they are earning their keep.
The Full Cost of a $100K Salary
“The cost of an employee goes far beyond their paycheck.”
Let’s take that $100K example. The direct salary is just one line item. You also need to account for:
- Payroll taxes
- Benefits (vacation, healthcare, retirement, etc.)
- Equipment and workspace
- Management overhead
- Operational support (HR, finance, IT)
When you add it all up, a $ 100,000 employee costs the company around $154,000 per year.
Quote to remember: “If you’re getting paid $100K, it’s likely costing your employer $154K to have you there.”
The Employee Profit Equation
“You’re either making money or saving money for the business. If not, you’re a luxury.”
Most businesses, especially agencies, aren’t charities. Therefore, to justify the expense, the company needs to generate a profit from your knowledge and labor. That means your revenue must be at least double your fully loaded cost—ideally more.
To make $100K, you must generate $300,000 to $350,000 in revenue and/or direct cost savings to the organization.
To simplify the math, you take the total number of reasonable billable hours for a year. Using a 40-hour week, which most agency staff know is unrealistic, for 52 weeks in the year, there are 2,080 available work hours. However, due to various factors, such as administrative activities and holidays, that is not possible for billing. Your “true billable time” refers to the actual billable hours you worked that can be invoiced, typically ranging between 1,750 and 1,900 per year.
Simple Formula:
- 2,080 work hours/year (40 hours x 52 weeks)
- Reimbursement + Profit
- Target billable rate: $164/hour
Action step: Calculate your target billable rate using this formula:
(Desired salary + 50–60% overhead) x 2 ÷ 2080 = Hourly rate
Factors Affecting Billable Hours:
- Non-Billable Time: Time spent on various administrative tasks, business development, training, and other non-billable activities reduces the total number of hours available for billing.
- Vacation and Holidays: Vacation time, holidays, and sick days further decrease the number of billable hours.
True Billable Time
Taking into consideration vacation, holidays, and other non-billable time, the actual utilization rate is closer to 1,900 hours (90% billable), with some firms aiming for closer to 2,000 hours and many that prioritize employee development and work-life balance settling on 85%. Your firm\’s culture will dictate the actual utilization ratio. You can review the different calculations in this Google Sheet.
| Requested Salary | $100,000 | |
| Fica Match (SS & Medicare) | 7.65% | $6,000 |
| Federal Unemployment | 6% on first 7k | $42 |
| State Unemployment* | 2% on first 10k | $250 |
| Worker Comp* | 1% | $1,200 |
| Disability* | 1% | $1,200 |
| Required Taxes | $7,492 | |
| Benefits | 25% | $25,000 |
| Non Billable Time | $9,760 | |
| Provided Assets | 3% | $3,000 |
| Management | 5% | $5,000 |
| Total Workforce Costs | $42,760 | |
| Total Overhead | $50,252 | |
| Fully Loaded Employee Cost | $150,252 | |
| Profit for Fully Loaded Cost | $150,252 | |
| Total Billable Requirement | $300,504 | |
| 85% Billable Hours | 1,768 | |
| Required Billable Hourly Rate | Non-Billable Time |
* This rate may vary by state
The Employee Value Framework
“Most people don’t know their billable target. That’s a problem.”
This framework isn’t just about individuals—it’s a tool for team planning, hiring, pricing, and promotions. The employee contribution or value framework needs to be a two-way street. The company needs to recover costs and generate a profit from the person’s knowledge and labor, and the employee needs to be fairly compensated for the value they deliver.
When someone says they want a raise, you can now have a meaningful conversation that removes ambiguity for everyone:
- Can your work command that reimbursement rate from clients?
- Are you billing enough hours?
- Are you delivering results that justify that premium?
If not, the focus shifts from “what I want” to “what I need to do to earn that salary.”
Action step for employees: Before asking for a raise, show how your value justifies the increase—using numbers, not just effort.
Action step for managers: Use this framework to map out staffing plans, promotions, and growth tiers.
The 85% Utilization Rule
“You’ll never be 100% billable—but you better be close.”
WPP’s model assumed 85% utilization as the benchmark. That accounts for internal meetings, admin tasks, training, and downtime. It’s realistic and sustainable, meaning you have 1,768 hours of billable labor.
Quote: “You won’t be 100% billable—but if you’re well below 85%, you either need more work or less cost.”
Using an Employee Utilization metric helps managers make smarter resourcing decisions:
- Who is underutilized and needs new assignments?
- Who is overutilized and at risk of burnout?
- When is it time to hire someone new?
- Do we need to generate more business?
Also, be aware of the overtime trap that many fall into. When people are regularly working late nights and weekends, there are reasons, and we need to understand them. Are they working to make a good impression because the boss is working, or are they doing it to keep up? In my experience, all of these indicate something’s broken.
A New Way to Think About Raises and Promotions
“Don’t think in terms of salary—think in terms of client value.”
Compensation is viewed through two different lenses. Employees often approach compensation emotionally, while employers must approach it economically. This framework aligns both perspectives and opens the door to transparent, data-driven conversations.
Action step: Use this model in performance reviews. Instead of vague goals, tie compensation directly to economic contribution.
Final Thought
“Your salary reflects the value you create—not the effort you exert.”
I have tried to explain this to my kids over their lifetime, as my father explained it to me. It\’s always about how much economic value you will generate for others. This is why all the LinkedIn guides advise you to detail value creation in terms of sales volume or cost savings, as that helps frame your contribution value.
This lesson isn’t just for agency leaders—it’s for every ambitious professional. If you want to grow your career (or your business), understand the economics behind every paycheck.
When you can translate your work into real value—billable hours, cost savings, or client wins—you stop being a cost center and start being a growth engine.
