How to Calculate Your Freelance Hourly Rate
Determining the right hourly rate is one of the most critical challenges for freelancers, contractors, and consultants. Unlike a salaried employee, your hourly rate must cover not just your take-home pay, but also your taxes, business overhead, equipment, software subscriptions, and unpaid time off.
This Freelance Hourly Rate Calculator uses a "bottom-up" approach to ensure you are profitable. By starting with your desired net income and factoring in the realities of self-employment costs, we reverse-engineer the exact hourly figure you need to charge clients.
The Logic Behind the Calculation
The formula for a sustainable freelance rate involves three main steps:
- Step 1: Calculate Total Financial Need. This includes your desired take-home salary, your annual business expenses (overhead), and the taxes you will owe to the government.
- Step 2: Calculate True Billable Hours. A common mistake is dividing by 2,080 hours (a standard 40-hour work week). Freelancers cannot bill for every hour they work. You must account for administrative tasks, marketing, and time off.
- Step 3: Divide and conquer. We divide your Total Financial Need by your True Billable Hours to find your minimum viable hourly rate.
Understanding the Input Factors
Target Annual Net Salary
This is the amount of money you want to put in your pocket after taxes and expenses are paid. Think of this as your "take-home" pay. For example, if you want a lifestyle comparable to a $75,000 corporate salary, start there.
Billable vs. Non-Billable Hours
Most freelancers only spend about 50-60% of their working time actually doing billable work. The rest is spent on:
- Invoicing and bookkeeping
- Finding new clients (business development)
- Replying to emails
- Skill development
If you plan to work 8 hours a day, it is safer to estimate only 4 to 5 of those hours will be billable.
Taxes and Overhead
As a freelancer, you are responsible for the employer portion of taxes (Self-Employment Tax in the US) in addition to income tax. A safe estimate is often 25-30% of your gross income, though this varies by location. Additionally, calculate your monthly overhead: web hosting, Adobe Creative Cloud, professional insurance, internet bills, and co-working space fees.
Vacation and Sick Time
Employees get paid time off; freelancers do not. If you want to take 2 weeks of vacation and allow for 1 week of sick time, you must earn your entire annual income in 49 weeks instead of 52. Our calculator adjusts your billable hours to ensure you can afford to take this time off without losing income.