Hourly Rate Calculator
Required Hourly Rate
$0.00 / hr
Billable Weeks/Year
0
Total Billable Hours
0
Gross Revenue Target
$0
Weekly Revenue Target
$0
How to Calculate Your Hourly Rate
Whether you are a freelancer, a contractor, or a business owner, determining the correct hourly rate is crucial for financial stability. Simply dividing your desired salary by standard working hours often leads to undercharging because it fails to account for non-billable time, business expenses, and time off.
The Hourly Rate Formula
This calculator uses a comprehensive formula to ensure your rate covers not just your salary, but your overhead and profit margin as well:
Hourly Rate = (Annual Income + Expenses + Profit Margin) ÷ (Billable Hours × Billable Weeks)
Here is a breakdown of the variables involved in the calculation:
- Desired Annual Income: This is the net "take-home" pay you want to earn before business expenses but after you've paid yourself. Think of this as your base salary.
- Annual Business Expenses: These include software subscriptions, hardware, office rent, insurance, marketing costs, and any other overhead required to run your operation.
- Billable Hours: Not every hour worked is billable. You spend time on emails, invoicing, and marketing. A standard 40-hour work week might only yield 25-30 billable hours.
- Weeks Off: You are not a robot. You need to account for vacation days, public holidays, and potential sick days. If you don't factor these in, you are effectively paying for your time off out of your own pocket.
- Profit Margin / Tax Buffer: It is wise to add a percentage buffer to cover unexpected taxes or to generate pure profit for business reinvestment.
Why Billable Hours Matter
One of the most common mistakes when calculating an hourly rate is assuming a 40-hour billable work week. In reality, administrative tasks can eat up 20% to 30% of your time. If you calculate your rate based on 40 hours but only bill 30, you will fall short of your income goals by 25%.
Example Calculation
Let's look at a realistic scenario for a freelance graphic designer:
- Goal Salary: $70,000
- Expenses: $5,000 (Software, Laptop, Hosting)
- Buffer: 20% (for taxes/savings)
- Time Off: 4 weeks (Vacation + Holidays)
- Billable Work: 30 hours/week
First, we calculate the total revenue needed: ($70,000 + $5,000) × 1.20 = $90,000.
Next, calculate total working hours: (52 weeks – 4 weeks) × 30 hours = 1,440 hours.
Final Rate: $90,000 / 1,440 hours = $62.50 per hour.
Adjusting Your Rate
Once you calculate your base rate, consider market factors. If your calculated rate is significantly lower than the market average, you have room to increase your profit margin. If it is higher, you may need to reduce expenses or increase your efficiency (billable hours) to remain competitive while meeting your income goals.