How to set your freelance hourly rate
A freelance hourly rate can be worked out from the income you want, rather than guessed from what others charge. Add your yearly expenses to your income target, then divide by the hours a client will actually pay for. With a USD 60,000 target, that method gives USD 59.03 an hour, or a quoting rate of USD 65 with a margin. The freelance rate calculator runs the same steps.
Why guessing from the market falls short
Rates found online or heard from other freelancers leave out the two numbers that decide whether a rate works for you. One is your own costs. The other is how many hours you can bill. Two people quoting the same hourly rate can end the year with very different incomes, because one bills twice as many hours as the other.
A market rate is still useful as a check on the result. Starting from your own figures shows the lowest rate that meets your target, and the market tells you whether clients in your field pay it.
The target income method, worked through
Amounts in this example are USD. A freelance designer wants an income of 60,000.00 a year before tax. Her business costs, such as software, equipment, insurance, and an accountant, come to 8,000.00 a year. She takes 4 weeks off, works 5 days a week and 8 hours a day, and expects 60% of her working hours to be billable.
| Step | Working | Result |
|---|---|---|
| Weeks worked | 52 minus 4 weeks off | 48 |
| Working hours | 48 x 5 days x 8 hours | 1,920 |
| Billable hours | 1,920 x 60% | 1,152 |
| Amount to bill | 60,000.00 + 8,000.00 | USD 68,000.00 |
| Hourly rate | 68,000.00 / 1,152 | USD 59.03 |
| With a 10% margin | 59.03 x 1.10, from the exact rate | USD 64.93 |
| Quoting rate | 64.93 rounded up to the next 5 | USD 65 |
The rate of 59.03 covers the target and the costs with nothing to spare. The 10% margin adds room for a slow month or an unpaid invoice, and rounding up to the next 5 gives a figure that is easy to quote. Over the year, the plan needs about USD 5,666.67 of billing a month.
Some freelancers also set aside a share of revenue for tax. The calculator handles that with a tax reserve. Its default example uses 6,000.00 of expenses and a 25% reserve, so the amount to bill becomes 66,000.00 / 0.75, which is USD 88,000.00. Over the same 1,152 billable hours, that is USD 76.39 an hour, rounded up to USD 77.
Billable hours: what eats them
Billable hours are the hours a client pays for. Everything else a freelancer does in a working week still takes time, and none of it appears on an invoice.
- Finding work: pitches, portfolio updates, networking, and calls that lead nowhere.
- Quotes and contracts, and revisions to them before a job starts.
- Invoicing, chasing payments, bookkeeping, and tax paperwork.
- Email and messages that are not part of a billable task.
- Learning new tools and keeping skills current.
- Gaps between projects, and days lost to illness.
The billable share changes the rate more than any other input. The table keeps the same 68,000.00 to bill and 1,920 working hours, and changes only the share.
| Billable share | Billable hours | Hourly rate |
|---|---|---|
| 50% | 960 | USD 70.83 |
| 60% | 1,152 | USD 59.03 |
| 70% | 1,344 | USD 50.60 |
| 80% | 1,536 | USD 44.27 |
Tracking your own billable share for a month
Your own records give a far better figure than any rule of thumb. For one ordinary month, log every working hour in a spreadsheet or a time tracking app, and tag each one as billable or not. At the end of the month, divide the billable hours by the total. A month with a holiday or an unusually large project gives a skewed answer, so a second month helps.
Day rates and project prices
A day rate is the hourly rate multiplied by the hours in a working day. At 8 hours, the rate with margin gives USD 519.44 a day, worked out from the exact hourly figure. Rounded up to the next 5, that is a day rate of USD 520. Day rates suit work where hours are hard to count, such as workshops or time on a client's site.
A project price starts from an estimate of the hours. A job estimated at 30 hours, priced at USD 65 an hour, comes to USD 1,950.00. Many freelancers add a buffer for revisions and calls before sending the figure. The quote and estimate maker turns that price into a document the client can accept.
Raising rates with existing clients
Costs and targets change, so a rate set once tends to fall behind. Moving from USD 65 to USD 70 an hour is a rise of 7.69%. Freelancers often give existing clients written notice, a start date, and a short reason, and some keep the old rate for work already agreed. The contract with each client may set out how and when a rate can change.
Quoting a rate to a client abroad
A client in another country may want the price in its own currency. A common approach is to set the rate in the currency your costs are paid in, then convert it. With an assumed rate of 1 USD = 0.7800 GBP, USD 65 an hour becomes GBP 50.70. The currency converter shows the day's mid market rate. Banks and payment services usually add a margin when the money moves, so the amount received can be lower.
Freelancers who invoice in another currency also carry the risk that the rate moves between the quote and the payment. Some quote in their own currency to avoid that, and some agree a review date with the client.
A rate is also a break even question. The guide to break even analysis shows how many sales or hours cover the fixed costs of a business before any profit.
Freelance rate questions
Does the rate include tax? Income tax depends on the country and on total income, so the calculator does not work it out. A tax reserve percentage raises the amount to bill so that the reserve is covered. Sales tax such as VAT or GST is a separate charge added on the invoice where it applies.
Is a day rate always 8 times the hourly rate? No. Some freelancers count a day as 7 or 7.5 hours, and some price a day slightly below 8 hours to reward a longer booking. The calculator multiplies by the hours per day you enter.
What if the result is far above what clients pay? Then something in the inputs has to move, such as the income target, the expenses, the weeks worked, or the billable share. The calculator shows the effect of each change straight away.
Next: Break Even Analysis for a Small Business, Step by Step