How to Set Your Freelance Hourly Rate: the Formula and a Calculator
Most new freelancers pick an hourly rate by taking a former salary and dividing by 2,080 hours. That gives a number that is too low, because a freelancer does not bill 40 hours a week for 52 weeks. This page gives you a formula that works backwards from the income you want, and a rate calculator that runs it for you.
The formula
Rate = (target take-home + business expenses + taxes) ÷ billable hours
Taxes depend on profit, so the clean way to do it is in two passes: work out the revenue you need, then divide by billable hours. The calculator does this for you using a flat estimated tax rate you choose. If you are unsure, our tax guide explains how to estimate it.
Step 1: Decide the take-home you want
Start with what you need to live on after tax, plus anything an employer would have covered: health insurance, retirement savings, paid time off. Freelancers often forget that those costs now come out of their rate.
Step 2: Add business expenses
Software, equipment, insurance, accounting, coworking, marketing, professional development. Add up a year, even roughly.
Step 3: Count billable hours honestly
Not every working hour is billable. Sales, admin, invoicing, learning and chasing payments take time you do not charge for. Many freelancers bill somewhere between 50 and 70 percent of their working hours. Then subtract holidays, sick days and vacation.
Example: 48 working weeks × 40 hours = 1,920 hours; at 60 percent billable that is about 1,152 billable hours.
Worked example
| Item | Amount |
|---|---|
| Target take-home | $70,000 |
| Business expenses | $6,000 |
| Revenue needed before tax, at an estimated 25% tax rate | (70,000 ÷ 0.75) + 6,000 = $99,333 |
| Billable hours | 1,152 |
| Hourly rate | about $86/hour |
Notice that the rate is higher than the "$70,000 ÷ 2,080 = $34/hour" salary shortcut by a factor of more than two. That gap is the cost of taxes, expenses, unpaid time and time off.
The order matters: tax applies to the profit you keep, so we gross up take-home first, then add expenses on top. The calculator lets you change the tax rate.
Hourly, day rate or project price?
An hourly number is mainly a planning tool. Many freelancers quote project or retainer prices once they know how long work takes. Use the hourly figure as the floor: if a fixed price implies less than your rate, either narrow the scope or raise the price.
Check the rate against reality
- If clients never push back, you are probably too low.
- If you lose every bid on price alone, look at the niche and positioning before cutting the rate.
- Review it every six months using actual billable hours from your invoices.
Tracking billable hours and invoices
You cannot improve a rate you do not measure. Time tracking plus invoicing software such as FreshBooks lets you see real billable hours per client and per month. See our invoice checklist for what each invoice should include so you get paid on time.