Financial ratios turn raw numbers into insights about business health. Learn the four key ratios for freelance businesses: revenue per hour, billable percentage, client concentration, and profit margin.
Your revenue, expense, and profit numbers tell you what happened. Financial ratios tell you whether what happened is good, bad, or deteriorating. Here are the most useful ratios for freelance business health.
Formula: Monthly revenue / Total hours worked
This is your real effective rate. A freelancer billing $6,000/month but working 80 total hours (including admin, sales, delivery) earns $75/hour effective. At 60 hours worked, the same revenue is $100/hour.
Target: Above your minimum acceptable hourly rate. Track monthly to spot trends.
Formula: Billable hours / Total hours worked x 100
For most service freelancers, 60-75% is healthy. Below 60% means too much admin or sales overhead. Above 80% is possible short-term but often indicates underinvestment in business development.
Formula: Largest client revenue / Total revenue x 100
Below 25%: Healthy. 25-40%: Monitor. Above 40%: Business risk requiring action.
Formula: (Revenue - All expenses) / Revenue x 100
Target: 50-70%+ for a healthy solo service business. Below 40% suggests pricing or expense issues. Below 20% is unsustainable.
Formula: Retainer revenue / Total revenue x 100
More MRR = more stable business. Target 30%+ MRR as a proportion of total revenue for meaningful income stability.
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