Business Hourly Rate Calculator
How to Calculate Your Business Hourly Rate
Setting the correct hourly rate is one of the most critical decisions for freelancers, consultants, and service-based business owners. Simply guessing a number or copying competitors often leads to undercharging, which can jeopardize the sustainability of your business. This calculator uses a comprehensive formula to ensure all your financial needs are met.
The Core Formula
This calculator determines your minimum viable hourly rate using a reverse-engineering approach. It starts with your financial goals and works backward to find the rate required to achieve them based on your actual capacity to work.
- Total Costs: We combine your desired personal income with your business overhead costs.
- Tax Adjustment: Since you pay taxes on gross income, we gross up your requirements so that your net take-home pay matches your goal.
- Billable Efficiency: No one works 100% of the time on billable client tasks. Administrative work, marketing, and sales (non-billable hours) must be paid for by your billable hours.
Understanding Billable Percentage
One of the most common mistakes is assuming you can bill 40 hours a week. In reality, most successful freelancers and consultants achieve a billable efficiency of 60% to 75%. The remaining time is spent on:
- Invoicing and Bookkeeping
- Business Development and Networking
- Skill Development
- Email and Communication
If you set your rate assuming 40 billable hours but only work 25 billable hours, you will fall significantly short of your income targets.
Why Include a Profit Margin?
Your salary pays you for the work you do. The profit margin pays the business. This separation is vital for growth. Profit allows you to reinvest in better equipment, hire subcontractors during busy periods, or build a cash reserve for lean months without dipping into your personal salary.