How to Calculate Your True Freelance Hourly Rate
Setting the right hourly rate is one of the most difficult challenges for new freelancers and consultants. Unlike a salaried employee, your freelance rate must cover not just your take-home pay, but also your taxes, business overhead, health insurance, and unbillable time.
Using the Freelance Hourly Rate Calculator above ensures you aren't undercharging for your services. It uses a reverse-engineering method to determine what you need to charge clients to hit your personal income goals.
The Logic Behind the Calculation
To calculate a sustainable freelance rate, you cannot simply divide your desired salary by 2,080 (the standard number of working hours in a year). Freelancers typically only bill for 50-75% of their working time. The rest is spent on administrative tasks, marketing, and professional development.
The formula used in this tool is:
- Step 1: Determine Gross Income Needed. We adjust your target net income to account for taxes.
Formula: Net Income / (1 – Tax Rate) - Step 2: Add Expenses. We add your software subscriptions, hardware costs, and other overhead to find your Total Revenue Goal.
- Step 3: Calculate Billable Hours. We subtract your weeks off from the year (52 weeks) and multiply by your realistic billable hours per week.
- Step 4: The Final Rate. Total Revenue Goal / Total Billable Hours.
Example Calculation
Let's look at a realistic example for a freelance web developer:
- Goal Net Income: $75,000
- Business Expenses: $8,000 (Laptop, Hosting, Software)
- Tax Rate: 30%
- Weeks Off: 4 weeks (vacation + sick days)
- Billable Hours: 25 hours/week
First, to take home $75,000 after 30% taxes, the developer needs a gross income of roughly $107,142. Adding the $8,000 expenses brings the Total Revenue Goal to $115,142.
With 4 weeks off, they work 48 weeks. At 25 billable hours a week, that is 1,200 billable hours per year.
Required Rate: $115,142 / 1,200 = $95.95 per hour.
Why Billable Hours Matter
New freelancers often overestimate their billable hours. If you work 40 hours a week, you are likely only billing 25 to 30 of those hours. The remaining time is spent finding clients, writing proposals, and managing finances. If you calculate your rate based on 40 hours but only bill 25, you will fall short of your income target by nearly 40%.