How to set your hourly rate as a freelancer

The most common mistake is converting an employed salary straight into an hourly number. If you earned 60,000 a year, 40 hours a week looks like roughly 29 an hour, and that feels like a fair starting point. It isn't close.

An employer was paying for a lot of things that never showed on your payslip: payroll taxes, paid holiday, sick days, equipment, software, the accountant, the office, and all the hours you spent in meetings and training that nobody billed a client for. As a freelancer you pay every one of those out of your rate, and you only get paid for the hours you invoice.

In practice a freelance rate that matches an employed salary lands two to three times higher than the naive hourly conversion. That is not greed — it is the same money with the hidden costs made visible.

Work backwards in four steps, in this order:

• Decide the income you want to keep for the year, after tax — this is the only number you should pick emotionally.
• Gross it up for tax: divide by (1 − your tax rate). At a 20% rate, keeping 60,000 means earning 75,000 before tax.
• Add your yearly business expenses on top — software, hardware, accountant, bank fees, insurance, courses. Say 6,000, giving 81,000.
• Add a profit buffer by dividing by (1 − buffer). A 10% buffer turns 81,000 into a 90,000 revenue target.

That final figure is what you must invoice over the year. Divide it by your billable hours and you have your rate. Do the arithmetic once by hand so you trust it, then let the calculator do it every time you change an assumption.

A full-time year looks like 2,080 hours. Your billable year is nothing like that. Take out holiday, public holidays and a realistic allowance for illness, and you are down to about 46 working weeks. Then take out the work that no client pays for: finding clients, quoting, invoicing and chasing payment, bookkeeping, email, admin, and learning your craft.

What survives is typically 20–30 billable hours a week for an established solo freelancer — and toward the lower end in your first year, when you spend far more time selling than delivering. Dividing your target by 40 hours instead of 25 understates your rate by more than a third and quietly guarantees you will miss your income goal while working flat out.

Continuing the example: 25 billable hours over 46 weeks is 1,150 hours a year. A 90,000 target across 1,150 hours is about 78 an hour, or roughly 626 for an eight-hour day. Compare that with the 29 an hour the salary conversion suggested.

Use your actual tax situation, not a round guess. The rate that matters is your effective rate — what you really hand over once your regime, thresholds and deductible expenses are taken into account — and it can differ substantially from the headline percentage. If you have a year of history, divide last year's total tax by last year's gross income and use that.

For expenses, go through twelve months of bank statements rather than working from memory. The recurring subscriptions are easy to forget and add up fast, and one-off purchases like a laptop belong in the yearly figure too, spread over the years you will use it.

The profit buffer is not padding. It absorbs the slow month, the client who pays sixty days late, the project that overruns your estimate, and the invoice that never gets paid at all. Ten to twenty percent is a sensible range; if your work is project-based and lumpy rather than a steady retainer, sit at the top of it.

Your calculated rate is a floor, not a verdict. Once you have it, look at what comparable freelancers in your specialism and region actually charge — job boards, agency rate cards, peers you trust. Three things can happen.

If the market sits comfortably above your floor, charge the market rate and keep the difference; you have been underpricing. If the market sits close to your floor, your assumptions are realistic and you have your number. If your floor is clearly above what anyone will pay, the rate is not the problem — the inputs are. Either the income goal is ahead of what this specialism supports, the billable hours are too low because too much time goes to unpaid work, or the expenses need trimming. Change one input at a time and watch which one moves the rate most.

Clients usually prefer a fixed price for a defined piece of work, and a fixed price is often better for you too: it rewards you for getting faster instead of penalising you. Keep the hourly rate anyway as your internal measuring stick. Estimate the hours honestly, add a margin for the parts you cannot see yet, multiply by your rate, and quote that as one number.

Afterwards, divide what you were paid by the hours it actually took. That effective rate is the most useful figure in your business: it tells you which clients and which kinds of project are worth repeating, and which ones look profitable until you count the hours.

Then raise the rate deliberately rather than waiting to feel resentful. Recalculate whenever your costs, tax or income goal change, when your calendar is consistently full, or once a year as a matter of routine. Quote new clients at the new rate immediately, give existing clients notice, and remember that a rate you never raise loses value every year to inflation alone.