Freelance hourly rate calculator
Most freelancers set their rate by looking at what others charge, then find out at tax time that it does not cover their bills. This calculator works the other way round: it starts with the take-home pay you want, adds tax, health insurance, software and the weeks you take off, and divides it all by the hours clients will actually pay for. You get the lowest rate you can afford to charge, a recommended rate with a margin for slow months, and the day rate and project quote that go with it.
Your rate at other billable shares
Billable share moves your rate more than anything else. Here is the same income target if you sell more or fewer of your hours.
| Billable share | Billable hours a year | Break-even rate | Recommended rate | Day rate |
|---|
Where your year goes
Every hour in a full-time year, split into the time clients pay for, the unpaid work that keeps the business running and your time off.
How the rate is worked out
The calculator builds your rate from the bottom up, the same way an accountant would price a service business. It starts with what you want to keep and adds every cost that an employer would normally cover.
Two rates come out of it. The break-even rate pays exactly your target in a year where every billable hour sells. The recommended rate adds your margin so a slow month does not knock you below it.
Gross up your take-home pay for tax
Tax is paid on profit, so the profit you need is larger than the pay you keep.
profit needed = take-home pay ÷ (1 − tax rate)
Add your business costs
Monthly costs times twelve. Health insurance and retirement saving are included because no employer pays them for you.
costs per year = (software + insurance + retirement + other) × 12
Add the margin
The margin is a share of revenue, so it is added on top rather than multiplied in.
revenue needed = (profit needed + costs) ÷ (1 − margin)
Count the hours you can bill
Only the weeks you work count, and only the share of those hours a client pays for.
billable hours = (52 − weeks off) × hours per week × billable share
Divide revenue by billable hours
This gives the recommended hourly rate. The day rate is eight hours of it and the project quote is your project hours times it.
hourly rate = revenue needed ÷ billable hours
Freelance rate questions
How do I calculate my freelance hourly rate?
Start with the yearly take-home pay you want, add the tax you will owe on it and your yearly business costs, then add a margin for slow months. Divide that total by the hours you can actually bill in a year, which is far fewer than the hours you work. The result is the lowest rate that still pays you what you planned.
Why is my freelance rate so much higher than my old hourly wage?
An employer pays part of your tax, your health cover, your paid holidays and the hours you spend in meetings or between projects. As a freelancer you pay all of that from your billable hours. Most freelancers need two to three times the hourly pay of a comparable salaried job just to end up in the same place.
What share of my hours can I bill?
Most full-time freelancers bill 50 to 70 percent of the hours they work. The rest goes to finding clients, writing proposals, invoicing, bookkeeping and learning. Newer freelancers with few repeat clients often bill less than half, so it is safer to start low and adjust once you have tracked a few months.
Should I charge by the hour or by the project?
Hourly billing protects you when the scope is unclear. Project pricing pays better once you are fast at a type of job, because the client pays for the result rather than your time. Even if you quote per project, use your hourly rate to price it: estimated hours times your rate, plus a cushion for revisions.
How much should I set aside for tax as a freelancer?
In the US, self-employment tax alone is about 15.3 percent of profit, on top of federal and state income tax, so 25 to 35 percent of profit is a common rule of thumb. Other countries differ. Check the figure with an accountant and set that share of every payment aside in a separate account.
What profit margin should I add?
Ten to twenty percent is a sensible start. It covers late-paying clients, quiet months and the odd project that runs over. Without a margin, your rate only works in a perfect year with every billable hour sold.
How often should I raise my rate?
Review it once a year and whenever you are booked solid for more than a couple of months. Full calendars mean demand is higher than your price. Raise rates for new clients first, then give existing clients notice before applying the new rate to their work.