Most freelancers set their rate by looking at what others charge, or by dividing an old salary by 2,000 hours. Both shortcuts go wrong for the same reason: they ignore the hours you cannot invoice and the costs you pay yourself.
This guide shows a method you can check line by line. If you want to skip the arithmetic, the hourly rate calculator does the same steps for you.
Start with the income you want to take home
Pick the yearly amount you want in your bank account after tax and business costs. Be specific. A figure you can defend, such as your rent, bills, savings and a buffer, works better than a round number you hope for.
Add your business costs
Add up what it costs to run the business for a year: software subscriptions, a laptop every few years, insurance, accounting, coworking, and training. These are paid out of revenue before tax, so they go on top of your take-home figure.
Gross up for tax
Your take-home income is what is left after tax, so the revenue behind it is larger. With a flat tax rate on profit, divide your take-home income by one minus the tax rate. At 25 percent, you divide by 0.75.
The revenue you need each year is then your costs plus that grossed-up figure. A flat rate is a simplification, because real tax usually rises in bands, so confirm the number with an accountant.
Count the hours you can really bill
Take 52 weeks and subtract the weeks you will not work: holidays, public holidays, sick days and gaps between clients. Multiply the remaining weeks by the hours you can invoice each week.
Billable hours are lower than working hours. Sales, quotes, admin and bookkeeping all take time that no client pays for. Many freelancers find that 20 to 25 billable hours is a realistic week, but track your own time for a month before you trust that range.
Divide
Divide the revenue you need by your billable hours. That is the lowest hourly rate that works.
A worked example
Take a freelancer who wants to take home 60,000, has 12,000 of yearly costs, pays 25 percent tax on profit and takes 6 weeks off a year.
- Grossed-up take-home: 60,000 divided by 0.75 is 80,000.
- Revenue needed: 80,000 plus 12,000 costs is 92,000.
- Working weeks: 52 minus 6 is 46.
The hourly rate then depends heavily on how many hours can be billed each week:
| Billable hours per week | Billable hours per year | Hourly rate needed |
|---|---|---|
| 20 | 920 | 100.00 |
| 25 | 1,150 | 80.00 |
| 30 | 1,380 | 66.67 |
| 35 | 1,610 | 57.14 |
Moving from 20 to 30 billable hours a week cuts the rate you need by a third. That is why finding a steady flow of paid work often matters more than a small rate increase.
What to do with the number
Treat the result as a floor, not a price. Your real rate should also reflect what the work is worth to the client, how in-demand your skills are and how much risk you take on. If the floor is far above what your market pays, you have three levers: cut costs, accept a lower take-home figure for a while, or move into work that pays more per hour.
Remember that software is one of the costs on the list. Before you commit to monthly subscriptions, compare what they cost at your size. The comparisons on this site put pricing next to features for that reason.