Setting the right freelance hourly rate is one of the most important decisions you'll make as a self-employed professional. Too low and you'll struggle to cover expenses; too high and you'll lose clients. Here's how to calculate a rate that actually works.
Why freelance rates must be higher than employee rates
As a freelancer, you pay self-employment taxes (typically 15–30% of income), cover your own health insurance, fund your own retirement, pay for tools and software, and have no paid vacation or sick days. Your hourly rate must cover all of these on top of your desired income.
Step-by-step rate calculation
Step 1: Determine your desired annual income
Start with what you want to take home after taxes. Let's use $60,000 as an example.
Step 2: Add taxes and expenses
Add self-employment tax (roughly 30% gross up): $60,000 ÷ 0.7 = $85,714. Then add annual business expenses (software, equipment, insurance): approximately $5,000–$15,000.
Step 3: Calculate billable hours
Not all working hours are billable. Account for: admin, marketing, client meetings, learning. A realistic billable percentage is 60–70% of working hours. If you work 40h/week for 48 weeks: 40 × 48 × 0.65 = 1,248 billable hours per year.
Step 4: Calculate your rate
Rate = (Desired income + taxes + expenses) ÷ Billable hours. Example: ($85,714 + $10,000) ÷ 1,248 = $77/hour.
Market rates vs. calculated rates
Compare your calculated rate with market rates for your skills. If the market pays less than your minimum viable rate, you need to either reduce expenses, increase the value you deliver, or specialise in a higher-paying niche.
How to use our calculator for freelance planning
Use our Hourly Salary Calculator to work backwards: enter your target annual income, set weeks to 48 (accounting for time off), and adjust hours to reflect your billable utilisation. This gives you the minimum hourly rate you need to charge.