Enough people have pointed out the importance of value pricing over hourly billing that I don't have anything to add there. But I will bring up a neglected poi

Enough people have pointed out the importance of value pricing over hourly billing that I don't have anything to add there. But I will bring up a neglected point, which is that this formula assumes that all employees hours are equal, or at least indistinguishable enough that you can take an average, and completely ignores the idea of leverage in professional services. Leverage is how you make a professional services firm a profitable, growing business, and not just a series of contractors that you farm out. To start thinking about leverage, you need to realize that not all of your employees are the same, so a globally blended rate doesn't make sense. Some of them are junior level employees who are smart and capable, but still learning the ropes. They benefit from your firm's intellectual property, so they're able to add value greater than their salary would indicate. At the top, you have the firm's principals or partners, who tend to have less time to spend doing work, because they're busy trying to market the firm and win new business. So even though their rate may be higher, it's spread across fewer hours. In the middle are either technical experts or managers who are able to command a higher rate, and can mentor others, but aren't quite ready to bring in new business on their own. As your employees learn and become capable of better work, they also become more valuable to you, which means you should pay them more, which means their rates should go up accordingly. But now you need them to do more valuable work, so you also need to find new junior people to replace them. This is how you help your employees grow, and it's how you help your firm grow. Your firm's profitability comes from the fact that you can charge greater than an employees costs to your clients. That's the basic idea behind a services business, otherwise you're all just independent contractors. So your source of profits is the amount you charge on top of your employee costs, and that could vary by level. The number of people at each level, and the amount you charge for them, depends on the nature of your work and your firm. Figuring out the rate balance and the right growth rate is one of the most important parts of managing your firm (probably second to creating a great culture, although the two are related). The reason that the firm in the article is able to raise more revenue by raising prices is because they've been undervaluing their own work this whole time. Once the price starts to better reflect value, the way you grow is by sustainably hiring in new people and growing them with the firm - the price mechanism is money that's currently being left on the table, it's not a growth mechanism.