Finance · 4 min read
How to Set Your Freelance Hourly Rate
Work backwards from what you need to earn in a year, including business costs and the benefits an employer used to pay for, then divide by the hours you can actually bill, not the hours you work. For most freelancers that's somewhere around 1,000–1,400 billable hours a year, far fewer than a full-time job's 2,080. That one adjustment is why sensible freelance rates look high compared with salaries.
Step 1: Your target income
Start with the salary you'd want as an employee. Say $70,000.
Step 2: Add what an employer used to cover
- Self-employment taxes. In the US you pay both halves of Social Security and Medicare (15.3% up to the wage base). In the UK, self-employed people pay Class 4 National Insurance on profits.
- Health insurance (especially in the US).
- Retirement contributions, since there's no employer match.
- Paid holidays and sick days: when you don't work, you don't earn.
Add a realistic figure for these. For our example, round the "salary plus employer extras" up to about $82,000.
Step 3: Add business expenses
Software, equipment, insurance, accounting, marketing, coworking, training. Say $8,000. Now you need $90,000 of revenue.
Step 4: Count billable hours honestly
- 52 weeks minus 6 weeks for holidays, public holidays and sick days = 46 working weeks.
- 46 × 40 hours = 1,840 working hours.
- Take off admin, sales, invoicing, learning and gaps between projects. Many freelancers bill 55–75% of their working time. At about 65%, that's roughly 1,200 billable hours.
Step 5: Divide
$90,000 ÷ 1,200 = $75 an hour.
At 1,000 billable hours it would be $90. Compare that with the naive version, $70,000 ÷ 2,080 = about $34 an hour, and you can see why so many new freelancers undercharge and burn out. To see what an hourly rate works out to as a salary, the hourly to salary calculator is handy, as long as you remember to use billable hours.
Step 6: Check it against the market
Your calculated rate is your floor, the minimum that keeps the business viable. Then look outward:
- What do people with similar experience charge in your niche and location?
- What's the value of the outcome to the client? A website that brings in $50,000 of sales is worth more than the hours it took.
- Would a project or day rate work better? Fixed prices reward you for being efficient instead of penalising you.
Common mistakes
- Using 2,080 hours. Nobody bills every working hour.
- Forgetting taxes and benefits. They're a real cost of being self-employed.
- Never raising rates. Review them at least once a year, and for new clients first.
- Discounting to win work. It's much harder to raise a rate with an existing client than to start at the right level.
Think about margin, too
If you resell anything, like hosting, printing or materials, don't just pass it through at cost. Add a margin to cover the time and risk of managing it. The profit margin calculator helps you set that price, and margin vs markup explains the difference.
Taxes and benefits vary a lot by country and situation, so it's worth checking your numbers with an accountant in your first year.
Frequently asked questions
How do I calculate my freelance hourly rate?
Add your target income, the extra costs an employer used to cover (taxes, benefits, time off) and business expenses, then divide by realistic billable hours, often 1,000–1,400 a year.
How many billable hours does a freelancer have per year?
Commonly around 1,000–1,400. After holidays, sick days, admin, sales and gaps between projects, most freelancers bill well under the 2,080 hours of a full-time job.
Why are freelance rates higher than employee hourly pay?
Freelancers pay their own taxes, benefits and business costs, don't get paid time off, and can't bill for all their working hours.
Should I charge hourly or per project?
Project pricing often suits well-defined work and rewards efficiency. Hourly suits open-ended work. Many freelancers use both, based on an hourly rate they've calculated.