How do I calculate my freelance rate?

Start with your desired take-home income, add business expenses and savings, account for taxes, then divide by your realistic billable hours. Most freelancers can bill 60-70% of their working hours.

What percentage of hours can freelancers bill?

Most freelancers can realistically bill 60-70% of their working hours. The rest goes to admin, marketing, client communication, and professional development.

Should I charge the same rate to all clients?

Not necessarily. Many freelancers use tiered pricing based on client type, project complexity, and timeline. Enterprise clients often have larger budgets than startups.

How to Set Your Freelance Rate

1. The Bottom-Up Approach

The traditional way to set rates is "top-down": look at market rates, pick a number, and hope it works out. This approach has a fatal flaw—it ignores your actual financial needs.

The bottom-up approach starts with a simple question:"What does my life cost per hour?"

Key insight: Your rate isn't about what you're "worth." It's about what you need to earn to live the life you want while covering all the hidden costs of freelancing.

This approach ensures you never accidentally price yourself into a financial hole. You might discover your rate needs to be higher than market rates—and that's valuable information.

2. Setting Your Income Goal

Start with your desired take-home income—the money that actually lands in your bank account after taxes and business expenses.

Consider:

Your current living expenses (rent, food, utilities, transportation)
Lifestyle goals (travel, hobbies, dining out)
Savings targets (emergency fund, retirement, investments)
Major purchases or life events (house, wedding, children)

Example: If you want to save $20,000/year, spend $50,000 on living expenses, and have $10,000 for discretionary spending, your take-home goal is $80,000.

3. Accounting for Business Expenses

Freelancing has costs that employees don't think about. These need to be added on top of your income goal.

Category	Typical Monthly Cost
Software & Tools	$100 - $500
Equipment & Hardware	$50 - $200 (amortized)
Health Insurance	$300 - $800
Coworking / Office	$0 - $500
Professional Services	$50 - $200
Marketing & Lead Gen	$50 - $300

A realistic monthly expense budget for most freelancers is $500 - $1,500, or $6,000 - $18,000 per year.

4. Calculating Your Tax Burden

This is where most freelancers get surprised. As a self-employed person, you pay:

Income tax on your earnings
Self-employment tax (Social Security + Medicare in the US)
State/local taxes depending on your location

Important: In the US, self-employment tax alone is 15.3% on top of income tax. Many freelancers need to set aside 25-40% of revenue for taxes.

Use our calculator's tax estimation feature to get a country-specific estimate, but always consult a tax professional for accuracy.

5. Realistic Billable Hours

Here's the uncomfortable truth: you can't bill for all your working hours.

A typical freelancer spends significant time on:

Finding and pitching new clients (20-30%)
Admin, invoicing, and bookkeeping (10-15%)
Learning and skill development (5-10%)
Meetings and communication (10-15%)

Reality check: If you work 40 hours/week, you might only bill 25-30 hours. That's a 60-75% billable rate—and that's considered good.

Don't forget time off:

Vacation: 2-4 weeks
Sick days: 5-10 days
Holidays: 10-15 days

6. The Rate Formula

Here's the formula that brings it all together:

Hourly Rate = (Income Goal + Expenses + Taxes + Savings) ÷ Billable Hours

Example calculation:

Take-home goal	$80,000
+ Business expenses	$12,000
+ Taxes (30%)	$39,400
+ Retirement savings (10%)	$13,100
= Gross revenue needed	$144,500
÷ Billable hours (1,200/year)	65% of 40h × 46 weeks
= Required hourly rate	$120/hour

7. Positioning and Negotiation

Your calculated rate tells you what you need to charge. Whether clients will pay it depends on how you position yourself.

If your rate is above market:

Specialize in a high-value niche
Target clients with bigger budgets (enterprise, funded startups)
Focus on value-based positioning, not hourly comparisons
Consider project-based pricing to hide the hourly math

If your rate is below market:

Great—you have room to grow or save more
Don't undersell yourself; charge what the market will bear
Use the difference for emergency savings or investments

Pro tip: Never negotiate against yourself. If a client doesn't balk at your rate, you probably could have charged more.

Calculate Your Rate Now

Use our free calculator to apply everything you've learned and find your ideal hourly rate.

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