The standard way to set a freelance rate is to decide on a target income, divide by the hours in a working year, and add a bit. This produces a number that is almost always too low, and it is too low for one reason: it assumes you can sell every hour you work.
You cannot. Not close.
Start from billable hours, not working hours
A working year is roughly 2,080 hours. As a freelancer, subtract:
- Holiday — you should take it. Four weeks: 160 hours.
- Public holidays — around 8 days: 64 hours.
- Sickness — nobody plans for it and everybody has it. A week: 40 hours.
- Everything that is not client work — finding the next client, proposals and calls that go nowhere, invoicing and chasing payment, accounts and tax, your own website, admin, training, keeping up.
That last category is the one people leave out, and it is the biggest. For most freelancers it runs at 25–35% of the year.
Realistically, a full-time freelancer sells 1,100 to 1,400 hours a year. Call it 1,200 as a planning figure.
The calculation
Work backwards from what you need to take home, and gross it up at the end. Doing it the other way round — starting from a gross figure and deducting tax — sends you round in circles, because the tax depends on the number you are trying to find.
For a $90,000 take-home target:
| Take-home target | $90,000 |
| Pension — nobody is contributing on your behalf | $9,000 |
| Business costs — software, hardware, insurance, accountant, phone, workspace | $8,000 |
| Needed after tax | $107,000 |
| Gross required, at a ~33% effective rate ($107,000 ÷ 0.67) | $160,000 |
$160,000 ÷ 1,200 billable hours = $133 an hour
Your effective tax rate depends entirely on where you are and how you are structured — a third of gross is a planning assumption, not advice. Substitute your own and the shape of the calculation holds.
The naive version — $90,000 ÷ 2,080 — gives $43. The gap between $43 and $133 is not greed. It is holiday, tax, pension, business costs, and the third of the year you spend running a business rather than doing the work.
This is the single most common reason experienced freelancers are busy and broke.
Sanity-check it against employment
A useful cross-check: what would this work cost a client as an employee? Salary plus employer taxes plus benefits plus overhead, divided by the ~1,250 billable hours an employee actually delivers. That is the true cost of an hour, and it is usually far higher than clients assume.
If your rate is below that, you are cheaper than hiring — while carrying all the risk, none of the security, and no notice period. That is not a competitive position, it is a subsidy.
Then stop selling hours where you can
The rate above is a floor and a unit of measurement, not necessarily what appears on the invoice.
Once you know your hourly floor you can price work fixed-fee with confidence, which is better for both sides: the client gets certainty, and you keep the benefit of being fast at things you have done fifty times. The freelancers who make good money are rarely the ones with the highest hourly rate — they are the ones who stopped charging by the hour for work they had already solved.
But you still need the hourly number underneath it, because it is how you know whether a fixed fee was any good. See hourly, fixed fee, or value-based.
Track your time even when nobody is buying it
This is the part freelancers skip, and it is where the money is.
If you quote $4,000 for a piece of work and do not track the hours, you will never know whether it was 20 hours ($200 an hour, excellent) or 55 ($73 an hour, below your floor). Do that for two years and you will have a strong feel for which clients are good and no idea which work is.
Track everything, including the unbillable admin, and once a quarter work out:
- Effective hourly rate per client — revenue divided by every hour that client consumed, including the calls and the emails. See effective hourly rate.
- Effective hourly rate per type of work. Almost everyone finds one category that pays far better than the rest, and they are usually surprised by which.
- Your actual billable percentage. If it is 45% rather than the 60% you assumed, your rate is too low by a third and has been all year.
Raising it
Rates do not rise on their own, and the longest-standing clients are usually the ones paying the least — because their rate was set when you were less experienced, and it has never been revisited.
Once a year, pick a date. Raise your rate for new clients first. Then tell existing clients, with notice, without apology and without a long justification. "My rate is going to $145 from January" is a complete sentence. The ones who value the work stay, and the ones who leave were the ones making your effective rate look bad anyway.
