Many freelancers pick an hourly rate by guessing, or by copying what someone else charges. A better approach is to work backwards from the income you need. This guide shows how, and why your rate should be higher than you think.
Why "salary ÷ 2,080" is wrong
A full-time job has about 2,080 paid hours a year (40 hours × 52 weeks). Freelancers cannot bill all of them. You pay your own taxes, insurance, software and equipment, you take holidays and sick days, and a big part of every week goes on unbilled work like marketing, admin and proposals. Dividing a salary by 2,080 undercharges almost everyone.
The formula
- Decide the yearly take-home income you want.
- Add your yearly business expenses (software, equipment, insurance, accounting, marketing, training).
- Gross up for taxes: take-home ÷ (1 − tax rate).
- Estimate your billable hours: hours per week × weeks worked per year.
- Divide the revenue you need by your billable hours.
The hourly rate calculator does these steps for you.
A worked example
- Target take-home: 70,000
- Business expenses: 6,000
- Estimated tax rate: 25%, so revenue for take-home = 70,000 ÷ 0.75 = 93,333
- Revenue needed: 93,333 + 6,000 = 99,333
- Billable time: 25 hours/week × 46 weeks = 1,150 hours
- Minimum rate: 99,333 ÷ 1,150 ≈ 86 per hour
If you had assumed 40 billable hours a week, you would have quoted about 54 an hour and missed your target by a wide margin.
Be realistic about billable hours
Most freelancers bill 20–30 hours in a 40-hour week. New freelancers often bill less while they build a pipeline. Track your time for a month and use the real figure, not the optimistic one.
Treat the result as a minimum
The calculated rate is the floor that keeps you on target. You can and often should charge more for:
- specialist skills and proven results
- rush jobs and short notice
- difficult scopes or demanding clients
- projects that carry more risk for you
Check what others in your niche charge as a sanity check, but do not let it pull your rate below your own minimum.
Hourly, day rate or project fee?
- Hourly: best when the scope is unclear or likely to change.
- Day rate: good for consulting and on-site work (hourly rate × the hours a day you can really bill, plus a premium for the commitment).
- Project fee: best when you can define the deliverable. You are paid for the outcome, and being fast earns you more.
- Retainer: a fixed monthly fee for ongoing access, which smooths your income.
Put the price in writing with the quote generator before starting, and bill with the hourly invoice generator or the retainer invoice generator.
Raising your rates
Review your rate at least once a year. Give existing clients notice (30 days is common), keep the increase modest, and apply the new rate to every new client straight away. You can also add a markup on materials or subcontracted work; see markup vs margin.
Frequently asked questions
What tax rate should I assume?
A rough 25–30% is a common starting point for US freelancers, covering income and self-employment tax. Your real rate depends on your income and state, so ask an accountant for an accurate figure.
Should I tell clients my hourly rate?
If you bill hourly, yes. If you price by project, you can quote the total and keep the hourly maths private.
How do I handle clients who want a lower rate?
Reduce the scope instead of the rate, or offer a shorter commitment. Dropping the rate permanently is hard to reverse.
Work out your own number with the hourly rate calculator, then invoice with the freelance invoice generator.