How to Calculate Your Sole Trader Hourly Rate
One of the most challenging aspects of becoming a sole trader or freelancer is determining what to charge. Unlike a traditional salary, your hourly rate must cover not just your desired "take-home" pay, but also your business expenses, taxes, and the time you spend on non-billable tasks like administration and marketing.
This Sole Trader Hourly Rate Calculator uses a "bottom-up" approach to pricing. Instead of guessing a number, we start with your financial goals and work backward to find the exact rate required to sustain your lifestyle and business.
Understanding the Calculation Logic
To calculate a sustainable rate, you must account for three critical "leaks" in your income pipeline:
- Taxes: As a sole trader, you are the tax collector. You must earn enough to pay the government and still keep your target net income.
- Overheads: These are business costs (software subscriptions, internet, accounting fees) that reduce your profit before you even pay yourself.
- Non-Billable Time: You cannot bill clients for 40 hours a week, every week. You need time for invoicing, finding new clients, and taking holidays.
Key Inputs Explained
Desired Net Annual Income: This is the salary you want landing in your personal bank account to pay for your mortgage, groceries, and lifestyle.
Annual Business Overheads: Sum up your yearly costs. Don't forget liability insurance, web hosting, and hardware upgrades.
Weeks Off: A standard employee gets paid holidays and sick leave. You don't. You must charge enough during your working weeks to cover the weeks you are resting.
Frequently Asked Questions
Should I charge by the hour or by the project?
While this calculator gives you an hourly baseline, project-based pricing is often more profitable for experienced sole traders. However, you should still use this hourly rate internally to estimate project costs. If a project takes 10 hours, your quote should be at least (10 x Your Hourly Rate).
What is a good billable efficiency percentage?
If you are just starting, you might spend 50% of your time marketing. Established sole traders usually aim for 70-75%. It is rare to sustain 90%+ billable efficiency without burning out or neglecting business administration.
Does this include VAT/Sales Tax?
No. The revenue target calculated here is what you keep as business revenue (Ex-VAT). If you are VAT registered, you should add VAT on top of this rate when invoicing clients.