How to calculate your freelance hourly rate

Most freelancers set their first rate by looking at what others charge, or by dividing their old salary by 2,000 hours. Both methods tend to give a number that is too low. An employer pays for holidays, equipment, software and insurance, and nobody bills the client for the hours spent finding the next job. As a freelancer you cover all of that yourself, and a rate that ignores it means working more for less.

The method below starts from the income you want to keep and works backwards. You can do it on paper or plug the numbers into the freelance hourly rate calculator.

Step 1: Decide how much you want to take home

Start with the money you want to keep each year after income tax, the figure you would compare with a net salary. Be honest about your living costs, your savings goals and the buffer you want for slow months.

If you are leaving a job, take your old net salary and add what your employer paid on your behalf, such as pension contributions, health insurance and a training budget. Those now come out of your own pocket.

Step 2: Add up your business expenses

List everything the business pays for in a year. Typical items include:

• Software subscriptions (design tools, accounting, project management, cloud storage)
• Hardware, spread over its useful life
• Internet and phone
• Coworking or a home office share
• Professional insurance
• Accountant or bookkeeping fees
• Training, books and conferences
• Marketing: website, portfolio hosting, ads
• Bank and payment processing fees

The small recurring charges are the ones people forget. If you have last year's bank statements, go through them; the total is often higher than you expected.

Step 3: Account for tax

Your take-home income is what is left after tax, so you need to earn more than that before tax. At an effective tax rate of 25 %, every $75 you keep needs $100 of profit:

Profit before tax = take-home income ÷ (1 − tax rate)

Use your effective rate, the share of profit that actually goes to income tax and social contributions, rather than your top bracket. Last year's tax return or a short conversation with an accountant will give you a reasonable figure, and rounding up gives you a small safety margin.

Business expenses are usually deducted before profit is taxed, so you add them after this step:

Revenue needed = profit before tax + business expenses

Step 4: Count your real billable hours

Most rate calculations go wrong here. An employee might work about 40 hours a week, but a freelancer cannot bill all of them. Part of the week goes to email and messages, sales calls and proposals, invoicing and taxes, learning new tools, marketing yourself, and the gaps between projects.

Freelancers who track their time often find they bill somewhere between half and three quarters of the hours they work. Your own number is the only reliable one, so track a few typical weeks before you trust it.

Then subtract the weeks you will not work at all. Four weeks of vacation, 10 public holidays (2 weeks) and a week for illness leave 45 working weeks.

Billable hours per year = (52 − weeks off) × billable hours per week

Step 5: Divide

Hourly rate = revenue needed ÷ billable hours per year

For a day rate, multiply by the hours you count as one billable day, usually 7 or 8.

A worked example

Say you want to keep $60,000 a year. Your business expenses are $10,000, your effective tax rate is 25 %, you can bill 25 hours a week, and you take 6 weeks off.

1. Profit before tax: $60,000 ÷ 0.75 = $80,000
2. Revenue needed: $80,000 + $10,000 = $90,000
3. Billable hours: (52 − 6) × 25 = 1,150
4. Hourly rate: $90,000 ÷ 1,150 = $78.26
5. Day rate at 8 hours: $626.09

The salary shortcut gives $60,000 ÷ 2,080 hours = $28.85 an hour. It leaves out tax, expenses, time off and non-billable work, and comes out at well under half of the real minimum.

Billable hours move the result more than any other input. With the same income goal and 35 billable hours a week, the rate drops to $55.90. With only 20, it rises to $97.83.

Why this number is a minimum

The method gives the rate at which you meet your income goal if you stay fully booked all year. If you charge less, the shortfall has to come from somewhere: longer hours, smaller savings or skipped holidays.

Your actual price can and often should be higher. A narrow niche with few competitors supports higher rates than general work. If your work saves clients time or makes them money, you can price against that value instead of your hours. Utilisation is another reason to add a margin: being 80 % booked on a rate that assumes 100 % means earning 20 % less than planned. Short projects and rush jobs carry more admin per billed hour, which is why many freelancers charge more for them or set a minimum fee.

Hourly, daily or fixed price?

Once you know your hourly floor, you can present it in whatever format clients prefer. Hourly billing suits open-ended work and ongoing support. A day rate cuts down on haggling over minutes and fits on-site or intensive work. A fixed project price lets you earn more when you work efficiently: estimate the hours, add a buffer for revisions and communication, multiply by your rate and quote the total.

Whichever format you choose, keep the hourly number as your internal check that a deal is worth taking.

Review your rate regularly

Costs, taxes and skills change. Recalculate at least once a year, and again after anything significant, such as a new expensive tool, a different tax setup or a long-term client leaving. Raising rates for new clients first, and for existing ones with notice, is a normal part of running a freelance business.

The freelance hourly rate calculator runs these steps for you and updates as you change each input, so you can compare scenarios in a minute.