How is a blended rate calculated?
List the roles that will work on the engagement, the hours each is expected to contribute per month, and the standard rate for each role. Multiply hours by rate for each role and add the results. Divide by the total hours.
The result depends entirely on the mix. Twenty hours of a $225 strategist and 80 hours of a $100 coordinator blend to $125. Fifty of each blend to $162.50. A blended rate quoted from one mix and delivered with another is a silent price change.
Some agencies use a blended cost rate as well, which divides total loaded payroll for the delivery team by its available hours. A 12-person agency with $90,000 of monthly delivery payroll and 2,079.6 available hours has a blended cost of about $43.28 per hour. Comparing the two blended rates gives a quick markup check.
When should an agency use a blended rate?
Blended rates suit retainers and fixed-scope projects where the client buys an outcome and does not want to audit who did what. They make proposals shorter and invoices less contested. They also let an account lead staff the work by availability rather than by what was quoted.
They suit hourly billing less well. On hourly work a blended rate rewards the agency for using junior staff and penalizes it for using senior staff, which is the opposite of what the client is paying for. Role-based rate cards are the better fit there.
- Retainers with a stable mix of roles: blended rate, reviewed at renewal
- Fixed-fee projects: blended rate used for internal pricing, fee quoted to the client
- Hourly engagements: role-based rates, with a blended figure for reporting only
- Media or pass-through heavy accounts: blended rate for services, spend passed through at cost
Why do blended rates go wrong?
The mix drifts. Proposals are written with a plan for 30% senior time and the account is delivered with 50% because the junior hire left or the client escalated. The fee stays fixed, the cost of delivery rises, and the margin on the account falls without any single decision being made.
Rates go stale. A blended rate set in 2023 and never revisited is discounted by every salary increase since. Agencies should recalculate the blend for each retainer at renewal, using the actual hours by role from the previous 3 to 6 months rather than the original plan.
The blend hides unprofitable roles. If the agency's standard rate for a coordinator is $100 and their loaded cost is $52, that role runs at 48% margin while the strategist at $225 against $95 runs at 58%. A blended $150 looks fine while the account is quietly staffed with the lower-margin role. Verbial calculates the delivered blended rate per client from approved hours by person and compares it with the rate in the signed proposal.
Worked example
An agency scopes a $15,000 monthly retainer for 100 hours and plans the mix as 15 hours of strategy at $225, 35 hours of account management at $150, 30 hours of design at $140 and 20 hours of coordination at $100. The weighted value is (15 × 225) + (35 × 150) + (30 × 140) + (20 × 100) = 3,375 + 5,250 + 4,200 + 2,000 = $14,825, so the blended rate is 14,825 ÷ 100 = $148.25, rounded to $150 in the proposal. After six months the actual mix is 28 hours of strategy, 32 of account management, 28 of design and 12 of coordination. The delivered value is 6,300 + 4,800 + 3,920 + 1,200 = $16,220, a delivered blended rate of $162.20. The client still pays $15,000, so the agency is under-recovering by $1,220 per month, or $14,640 per year, with no change in hours.
Questions
Is a blended rate the same as an effective hourly rate?
No. A blended rate is the price the agency intends to charge per hour, set in advance. The effective hourly rate is what it actually earned per hour after the work is done, which is revenue divided by hours delivered. The gap between them is the agency's realization problem.
How often should a blended rate be recalculated?
At every renewal and at least once a year. Recalculate from the actual hours by role over the previous 3 to 6 months, not from the original proposal, and reprice the retainer if the delivered blend has moved by more than 5%.
What markup should a blended rate carry over cost?
Most marketing agencies target a billing rate of 3 to 3.5 times the loaded hourly cost of the people doing the work, which produces a gross margin of 50 to 60% after non-billable time is accounted for. A $150 blended rate over a $43 blended cost is a multiple of about 3.5.