Custom Rate Calculator
The take-home pay you want per year.
Software, hardware, insurance, rent.
Percentage of gross income to save for taxes.
% of work time actually billed to clients.
Vacation, sick days, and holidays.
Standard working hours per week.
Gross Revenue Goal:
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Total Billable Hours:
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Minimum Hourly Rate:
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Minimum Daily Rate (8h):
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How to Calculate Your Custom Service Rate
Whether you are a freelancer, consultant, or running a service-based agency, determining the correct "Custom Rate" is critical for profitability. Unlike a salaried position where your paycheck is fixed, your custom rate must account for non-billable time, taxes, overhead, and profit margins.
Many professionals undervalue their services by simply dividing their desired salary by 2,080 (the standard number of working hours in a year). This approach often leads to burnout and financial strain because it ignores the reality of running a business.
The Logic Behind the Calculation
This calculator uses a reverse-engineering approach to determine exactly what you need to charge to meet your financial goals. Here is the breakdown of the formula used:
- Gross Revenue Requirement: We start by taking your Target Net Income and adding your Annual Business Expenses. We then adjust this total based on your Tax Buffer to ensure you have enough pre-tax revenue to cover your liabilities.
- Actual Working Capacity: We subtract your weeks off (vacation, holidays, sick time) from the standard 52-week year.
- Billable Efficiency: It is impossible to bill 100% of your time. Administrative tasks, marketing, and emails consume hours that clients don't pay for. We apply your "Billable Efficiency" percentage to find your true number of revenue-generating hours.
Understanding Billable Efficiency
One of the most overlooked metrics in rate calculation is efficiency. Most successful freelancers operate at a 60% to 75% billable rate.
- 100% Efficiency: Unrealistic. Implies zero time for invoicing, emails, or finding new clients.
- 75% Efficiency: A healthy target for established professionals.
- 50% Efficiency: Common for those just starting out who spend significant time on marketing.
Why You Should Charge More Than You Think
Your custom rate is not just your salary; it is the fuel for your business. If your calculated hourly rate seems high compared to a salaried employee's hourly wage, remember that you are covering costs that an employer usually pays: health insurance, retirement matching, software licensing, and office space.
Use the "Minimum Hourly Rate" generated above as your floor. Depending on your market demand, niche expertise, and value provided, you should aim to price your services above this minimum to generate pure profit for business growth.