The Cost of Doing Business (CODB) Calculator is a powerful tool that helps businesses determine the operational cost per hour required to break even. It provides an accurate estimate of how much a business needs to charge for its services or products to cover fixed and variable costs while maintaining profitability. This tool is especially useful for freelancers, service providers, and small business owners who rely on billable hours or unit-based pricing.
By understanding the cost of doing business, companies can set competitive rates, identify inefficiencies, and make data-driven decisions to maximize profitability.
Formula of Cost of Doing Business (CODB) Calculator
The formula for calculating the Cost of Doing Business is:
CODB = (Total Fixed Costs + Total Variable Costs) / Total Billable Hours
Detailed Breakdown
1. Total Fixed Costs
Fixed costs are expenses that remain constant regardless of production or service levels.
Total Fixed Costs = Rent + Utilities + Insurance + Equipment Depreciation + Salaries for Non-Billable Staff
- Rent:
Rent = Monthly Rental Expense × 12 - Utilities:
Annual expenses for electricity, water, and internet. - Insurance:
Total annual insurance premiums for business coverage. - Equipment Depreciation:
Equipment Depreciation = (Equipment Purchase Price − Salvage Value) / Useful Life - Salaries for Non-Billable Staff:
Total annual salaries for administrative and support staff who do not directly generate revenue.
2. Total Variable Costs
Variable costs change depending on production or service levels.
Total Variable Costs = Cost per Unit of Work × Total Units of Work Produced
- Cost per Unit of Work:
Cost per Unit of Work = Total Direct Costs / Total Units of Work - Total Direct Costs:
Sum of raw materials, billable staff wages, shipping costs, and other direct expenses.
3. Total Billable Hours
The total hours that generate revenue for the business.
Total Billable Hours = Number of Billable Employees × Annual Work Hours per Employee × Utilization Rate
- Annual Work Hours per Employee:
Annual Work Hours = Average Weekly Work Hours × Number of Weeks Worked - Utilization Rate:
Utilization Rate = (Billable Hours / Total Work Hours) × 100
Expanded Variable Formulas
| Variable | Formula |
|---|---|
| Equipment Depreciation | (Equipment Cost − Salvage Value) / Useful Life |
| Cost per Unit of Work | Total Direct Costs / Total Units of Work |
| Total Direct Costs | Raw Material Costs + Labor Costs + Shipping Costs + Other Expenses |
| Utilization Rate | (Billable Hours / Total Work Hours) × 100 |
General Terms Table
Below is a reference table for commonly used variables to help businesses estimate their CODB:
| Variable | Typical Value Range | Notes |
|---|---|---|
| Monthly Rent ($) | 1,000–10,000 | Varies by location and business size |
| Utility Costs ($/month) | 200–1,000 | Includes electricity, water, and internet |
| Insurance Costs ($/year) | 500–5,000 | Business insurance premiums |
| Equipment Depreciation ($/year) | 1,000–10,000 | Depends on equipment type and value |
| Average Hourly Rate ($) | 20–200 | Varies by industry and skill level |
Example of Cost of Doing Business (CODB) Calculator
Scenario:
A freelance graphic designer wants to calculate their cost of doing business. Their data includes:
- Monthly Rent: $1,000
- Annual Utilities: $2,400
- Insurance: $1,200
- Equipment Cost: $5,000 with a salvage value of $500 and a useful life of 5 years
- Annual Work Hours: 2,000 hours
- Utilization Rate: 75%
- Total Direct Costs: $20,000
- Total Units of Work: 400 projects
Step1: Calculate Fixed Costs
- Rent = $1,000 × 12 = $12,000
- Utilities = $2,400
- Insurance = $1,200
- Equipment Depreciation = ($5,000 − $500) / 5 = $900
Total Fixed Costs = $12,000 + $2,400 + $1,200 + $900 = $16,500
Step2: Calculate Variable Costs
- Cost per Unit of Work = $20,000 / 400 = $50
- Total Variable Costs = $50 × 400 = $20,000
Step3: Calculate Total Billable Hours
- Billable Hours = 2,000 × 75% = 1,500 hours
Step4: Calculate CODB
CODB = (Total Fixed Costs + Total Variable Costs) / Total Billable Hours
CODB = ($16,500 + $20,000) / 1,500 = $36,500 / 1,500 = $24.33/hour
Interpretation:
The designer needs to charge at least $24.33 per hour to cover their cost of doing business.
Most Common FAQs
This calculator helps businesses and freelancers determine their minimum hourly or per-project rate to cover expenses, ensuring financial sustainability and profitability.
To lower the CODB, businesses can reduce overhead costs, improve utilization rates, or streamline operations to increase billable hours.
Freelancers, service providers, and small business owners benefit the most as it enables them to set competitive rates and manage their expenses effectively.