How to Set Your Freelance Hourly Rate (Without Guessing)

Picking a rate by looking at what others charge is the most common mistake new freelancers make. Their costs, taxes, experience and hours are not yours. Someone charging 25 an hour might live somewhere cheap, work 50 billable hours a week, or simply be undercharging and heading for burnout. Copying their number copies their problems.

A better way is to start from the income you actually need and work backwards. It takes about ten minutes, and the result is a rate you can explain and defend, both to clients and to yourself.

Step 1: Decide your take-home income

Write down the yearly amount you want to keep after tax and business costs. This is the money for rent, food, bills, savings, holidays and everything else in your personal life.

Base it on your real personal budget, not on a number that sounds good. Add up your monthly living costs, add what you want to save each month, and multiply by 12. If you are not sure, start with what you earned in your last job. Most people should not accept less as a freelancer than they earned as an employee, because freelancing carries more risk.

Remember that as a freelancer you also have to fund things an employer used to provide: retirement savings, paid holidays and sick days. Your take-home goal should include room for these.

Step 2: Add your business costs

List everything you pay to run your business. Common costs include:

• Laptop, monitor, phone and other equipment (spread over their useful life)
• Software subscriptions and tools
• Internet and a share of your phone bill
• Co-working space or a share of home office costs
• Accountant, bookkeeping and banking fees
• Payment provider fees and currency conversion costs
• Insurance, website, domain and hosting
• Training, courses and books

Freelancers often forget yearly items, so check your bank statements for the last 12 months. Add everything up to get a yearly figure.

Step 3: Allow for tax

Tax comes out of what you earn, so you need to gross up your target. If your tax rate is 25%, you need to earn about 1.33 for every 1 you keep. The formula is:

Gross revenue needed = (take-home income + business costs) ÷ (1 − tax rate)

Your tax rate depends on your country, your income and any social or health contributions for the self-employed. If you are unsure, choose a slightly higher rate to be safe, and check with a local accountant or your tax office's website.

Step 4: Count only billable hours

This is where most freelancers go wrong. You will not bill 40 hours a week for 52 weeks a year.

First, remove time off. Holidays, public holidays and sick days are unpaid when you work for yourself. Most freelancers plan for 46 to 48 working weeks a year.

Next, remove non-billable time. Every week you will spend hours on email, finding new clients, writing proposals, invoicing, bookkeeping and learning. Nobody pays you for these hours, but they are essential. Many freelancers bill only 50% to 70% of the hours they work.

Billable hours = working weeks × hours per week × billable %

Then divide: hourly rate = gross revenue needed ÷ billable hours.

A worked example

Sara wants 30,000 take-home, has 3,000 of costs, pays 20% tax, works 46 weeks of 40 hours and bills 60% of the time.

• Gross revenue needed = (30,000 + 3,000) ÷ 0.80 = 41,250
• Billable hours = 46 × 40 × 0.60 = 1,104
• Minimum hourly rate = 41,250 ÷ 1,104 = 37.36 an hour

If Sara had simply divided 30,000 by 2,080 hours (40 hours × 52 weeks), she would have charged about 14.42 an hour, and she would be working for less than half of what she needs.

Add a margin on top

Your result is a floor, not a target. Add 10% to 30% on top for:

• Slow months, when you have fewer billable hours than planned
• Late or unpaid invoices
• Scope creep, the small extra requests that add up
• Growth, so you can invest in better tools and training

Then round to a clean number. A rate of 45 is easier to quote than 43.17.

Check it against the market

Once you have your number, look at what experienced freelancers in your field charge. If your rate is far below the market, you can probably charge more. If it is far above, look for ways to justify it with a clear specialism and strong results, or reduce your costs. Do not drop below your minimum just to win a project. That only works for a short time.

What to do next

Run your own numbers in the calculator below and quote your new rate on your next proposal. Review your rate every six months, when your costs change, or when you are consistently fully booked. Raise it for new clients first, then give existing clients clear notice before raising theirs.

FreelanceCalc

FreelanceCalc builds free, tested money calculators and practical guides for freelancers, remote workers and side hustlers.

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