Freelance hourly rate: how to calculate the rate you need

The formula

Revenue needed = (target income + overheads) × (1 + margin)
Billable hours = (52 − holiday weeks − sick and training weeks) × hours per week × utilisation
Minimum hourly rate = revenue needed ÷ billable hours

• Target income: what you want to pay yourself before income tax, the equivalent of a gross salary. If you compare with a job, add what the employer paid on top, such as pension contributions and health cover.
• Overheads: software, equipment, insurance, accountant, coworking, phone, training, marketing.
• Margin: a buffer for quiet months, late payers and reinvestment. 10–20% is a common choice.
• Utilisation: the share of your working time you can bill. Sales, admin, quotes and email are work, but nobody pays for them.

Working through the example

Nora wants $70,000 a year and has $9,000 of overheads. With a 15% margin she needs (70,000 + 9,000) × 1.15 = $90,850 in revenue. She takes five weeks of holiday and plans two weeks for illness and training, which leaves 45 working weeks of 40 hours, 1,800 hours. At 60% utilisation she bills 1,080 hours.

$90,850 ÷ 1,080 hours = $84.12 an hour. That is a floor: below it she subsidises her clients. Rounded up to the next $5 with =CEILING(B12,5) she quotes $85, which is a day rate of $680 for an 8-hour day. The naive rate, $70,000 ÷ 2,080 hours = $33.65, would leave her with less than half the income she wanted.

Worked example: a freelance hourly rate calculator

The yellow cells are Nora's inputs. Change them to your own numbers and every result updates.

Worked example: a freelance hourly rate calculator

	A	B	Formula in B
1	Item	Value
2	Target income per year (before income tax), $	70,000
3	Business overheads per year, $	9,000
4	Margin for quiet months and reinvestment	15%
5	Revenue needed = (income + overheads) × (1 + margin)	90,850	=(B2+B3)*(1+B4)
6	Holiday weeks	5
7	Sick and training weeks	2
8	Working hours per week	40
9	Utilisation (share of hours you can bill)	60%
10	Working weeks = 52 − holiday − sick	45	=52-B6-B7
11	Billable hours per year = weeks × hours × utilisation	1,080	=B10*B8*B9
12	Minimum hourly rate = revenue ÷ billable hours, $	84.12	=B5/B11
13	Quoted rate, rounded up to the next $5	85	=CEILING(B12,5)
14	Day rate at 8 hours, $	680	=B13*8
15	Salary ÷ 2,080 hours (the naive rate), $	33.65	=B2/2080
16	Minimum rate if utilisation is only 50%, $	100.94	=B5/(B10*B8*0.5)

The freelancer and all figures are fictional examples. Tax and fee rules depend on your country and platform.

Utilisation is the number that matters most

A full-time freelancer rarely bills more than 60–70% of their working hours, and in the first year often less. If Nora bills only 50%, her floor rises from $84.12 to $100.94 for the same income. Each 10 percentage points of utilisation moves the rate by roughly 15–20%, more than any other input.

Track your real utilisation for a few months: billable hours ÷ total hours worked. Use that, not the number you hope for. Also count unpaid gaps between projects as non-billable time, either through a lower utilisation or through more weeks off.

Tax, fees and other things to add

• Income tax: the target income in this calculator is before income tax, like a gross salary, so tax is paid out of it. If you start from the net amount you want to keep, gross it up first. Set tax money aside from every payment, because nobody withholds it for you.
• Platform and payment fees: if a marketplace keeps a percentage, divide your rate by (1 − fee %) to keep the same net amount. Adding the fee percentage on top is not enough, because the fee is charged on the higher price as well.
• VAT or sales tax: where you must charge it, it comes on top of your rate and is passed on, so it is not part of this calculation.
• Late payment: long payment terms do not change the rate, but they change how much cash buffer you need.

From the floor to your actual price

The calculator gives the lowest rate that works for you. What you charge also depends on the market rate for your skills, your experience and the value of the work to the client. If the market pays well above your floor, charge the market rate. If it pays below, raise utilisation, cut overheads, specialise or switch to day rates and project prices that reward working fast.

For fixed-price projects, estimate the hours, multiply by your rate and add a buffer for scope creep, then check the effective hourly rate after the project: price ÷ hours actually worked. That number, tracked over time, tells you whether your pricing works. For a quick check on margins, see markup vs margin.

Common mistakes

• Dividing a salary by 2,080 hours. That assumes 52 paid weeks and 100% billable time. Freelancers have neither.
• Forgetting overheads. An employer paid for your laptop, software, insurance and desk. Now you do.
• Assuming full utilisation. Sales, admin and quotes take time. 50–70% billable is realistic for most solo freelancers.
• Leaving out holidays and sick days. Weeks you do not work still have to be paid for by the weeks you do.
• Treating the minimum rate as the price. It is a floor. Charge the market rate if it is higher.
• Adding platform fees on top instead of grossing up. Divide by (1 − fee %), because the fee is taken from the higher price too.