How to Calculate Hourly Billing Rate

Hourly Billing Rate Calculator

Determine exactly what you should charge per hour to hit your financial goals.

Total personal take-home pay after business expenses.

Software, rent, equipment, insurance, taxes.

Extra buffer for business growth/savings.

Hours actually charged to clients (not admin/marketing).

Vacation, holidays, and sick leave per year.

Recommended Hourly Rate:

Setting the right hourly rate is one of the most critical decisions for freelancers, consultants, and service-based business owners. Charge too little, and you'll burn out without reaching your financial goals; charge too much without justification, and you may struggle to land clients. This guide breaks down the math behind a sustainable rate.

The Realistic Hourly Rate Formula

Your hourly rate is not just your "salary" divided by time. You must account for business expenses, the "cost of doing business," and non-billable hours. The standard formula used by this calculator is:

Hourly Rate = (Annual Net Income + Annual Expenses) / (1 – Profit Margin) / (Annual Billable Hours)

Key Components Explained

• Desired Net Income: This is what you want to keep in your pocket after all business expenses are paid, but before personal income taxes.
• Annual Expenses: These are the costs of running your business. Include software subscriptions, office equipment, professional insurance, marketing, and self-employment taxes.
• Billable Hours: Most professionals spend 20-30% of their time on "non-billable" work like administrative tasks, bookkeeping, and finding new clients. If you work 40 hours a week, you might only bill 25-30 hours.
• Profit Margin: A profit margin acts as a safety net. It allows the business to save for future equipment, professional development, or unexpected downturns.

Example Calculation

Let's say Jane wants to earn a $70,000 net income. Her annual expenses (software, laptop, home office, taxes) total $15,000. She wants a 10% profit margin.

Jane takes 4 weeks of vacation per year, meaning she works 48 weeks. She can bill 30 hours per week.

1. Annual Billable Hours: 48 weeks × 30 hours = 1,440 hours.
2. Total Revenue Needed: ($70,000 + $15,000) / 0.90 = $94,444.
3. Hourly Rate: $94,444 / 1,440 hours = $65.58 per hour.

Why Non-Billable Time Matters

A common mistake is dividing your target income by a standard 2,080-hour work year (40 hours x 52 weeks). This assumes you bill every single second of every single day. In reality, sick days, administrative work, and client acquisition eat into that time. If you use 2,080 as your denominator, you will consistently fall short of your income targets.