How to Calculate Your Hourly Rate as a Freelancer
Your hourly rate is the number behind every price you quote. If it is wrong, you can be fully booked and still come up short at the end of the month. The math is simple and takes about 5 minutes.
The Math in 4 Steps
- How much you want to take home each month, like a salary, after taxes.
- How much you set aside for taxes. When you work for yourself, nobody withholds taxes for you. You pay self-employment tax plus income tax, and 25% to 30% of what you earn is a common rule of thumb.
- Your monthly business costs: phone, software, insurance, tools, your car, health insurance, rent for a workspace.
- How many hours a month clients actually pay for. Not every hour you work: marketing, quotes, driving and admin are unpaid.
Your hourly rate is: (take-home pay ÷ (1 − tax rate) + monthly costs) ÷ paid hours per month.
Example
Sam is a freelance designer. Sam wants to take home $4,000 a month, sets aside 25% for taxes and spends $500 a month on software, a phone and insurance. Sam works 40 hours a week, but only 30 are paid client work.
With 4 weeks off a year, that is 30 × 48 ÷ 12 = 120 paid hours a month. To take home $4,000 after 25% taxes, Sam needs to earn $4,000 ÷ 0.75 = $5,333. The math is ($5,333 + $500) ÷ 120 = $49 an hour. Below that, Sam works more than Sam earns.
Why Paid Hours Are Fewer Than You Think
People who leave a salaried job often divide their old salary by 2,080 hours (40 hours × 52 weeks). But nobody pays you for finding clients, answering messages, sending invoices or taking a vacation. Counting only paid hours is what keeps your rate from being too low.
Work Out Yours
Once You Know Your Hourly Rate
Open the price calculator, check "I already know my hourly rate" and enter the time and costs for each job. It adds materials, travel and card fees and writes a quote you can text or email to your client.
Review your rate at least once a year, or whenever your costs change.
Frequently Asked Questions
How many hours a week should I count?
Only the hours clients pay for. For most freelancers, that is 50% to 75% of the time they work.
Do I really need to set aside money for taxes?
Yes. Self-employed people in the US pay self-employment tax (Social Security and Medicare) on top of income tax, and usually make estimated payments every quarter. Ask a tax professional about your exact situation.
What if my rate comes out higher than the market?
Check your costs and paid hours first. If it is still high, work on your positioning: better service, a niche, or clients who value what you do more.