The Blended Rate Formula Explained Simply
A deep dive into the math of blended rates with step-by-step examples and visual aids.
Mastering the Math
At its core, a blended rate is a weighted average. This means that the more hours a specific role works, the more influence their rate has on the final result.
Step-by-Step Calculation
- Multiply each role's rate by its total hours (headcount × hours). This gives you the Segment Cost.
- Sum all the Segment Costs to get the Total Team Cost.
- Sum all the hours to get Total Team Hours.
- Divide Total Team Cost by Total Team Hours.
Σ(Rᵢ × Hᵢ) / ΣHᵢ
The Weighted Average Formula
This formula ensures that your pricing is mathematically sound and fair to both the vendor and the client.
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