How to Calculate Your Freelance Hourly Rate (Without Undercharging)
Dividing the salary you want by 2,080 hours is the most common way freelancers price themselves, and it's why so many of them end up broke. This guide works backwards from the money you actually want to keep and shows the formula behind our hourly rate calculator.
Why "salary ÷ 2,080" undercharges
2,080 is 52 weeks × 40 hours. That's the number of hours a salaried employee is paid for, and it includes paid holidays, sick days and the time spent in meetings that nobody bills for. As a freelancer you only get paid for billable hours, and four costs that an employer used to absorb now come out of your rate:
- Non-billable time: finding clients, writing proposals, invoicing, admin, learning, and the gap between projects.
- Time off: holidays, public holidays and sick days are unpaid unless your rate covers them.
- Business costs: software, hardware, insurance, a coworking desk, accounting help.
- Tax and payment fees: nobody withholds tax for you, and card, PayPal or currency-conversion fees come off every invoice before the money reaches you.
The six numbers you need
- Yearly take-home goal. What you want to keep after business costs and after moving your tax money aside. Base it on your real living costs plus savings, not on a job title.
- Weeks you won't work. Holidays + public holidays + a realistic allowance for sick days and slow weeks. Be honest; this is the number people most often set to zero.
- Days per week and hours per day you are at your desk working on the business.
- Billable share. The percentage of those hours you can actually charge a client for. If you track your time for two weeks you'll know your own number. Until then, run the calculator at a few levels (for example 50%, 60% and 70%) and see how much the result moves.
- Yearly business costs. Add up subscriptions, equipment spread over its useful life, insurance and any professional fees.
- Tax set-aside % and payment fee %. The set-aside is a savings percentage you choose. It is not a tax calculation (see how to pick a set-aside percentage). For fees, check your payment provider's current published pricing and use the effective percentage on a typical invoice.
The formula
Billable hours / year = (52 − weeks off) × days per week × hours per day × billable share Revenue needed / year = (take-home ÷ (1 − tax set-aside %) + business costs) ÷ (1 − payment fee %) Rate floor / hour = revenue needed ÷ billable hours Day rate floor = rate floor × hours per day Quoting rate = rate floor × (1 + buffer %)
The order matters. Tax is set aside on what's left after costs, so the take-home is grossed up for tax first and the costs are added after that. Payment fees are charged on the whole invoice, so they are grossed up last.
Worked example
These inputs are invented for illustration. They are not typical or recommended values:
| Input | Value |
|---|---|
| Take-home goal | $48,000 |
| Weeks off | 8 |
| Days × hours | 5 days × 7 hours |
| Billable share | 60% |
| Business costs | $3,600 / year |
| Tax set-aside | 25% |
| Payment fees | 3% |
- Billable hours: (52 − 8) × 5 × 7 × 0.60 = 924 hours
- Revenue needed: (48,000 ÷ 0.75 + 3,600) ÷ 0.97 = $69,690.72
- Rate floor: 69,690.72 ÷ 924 = $75.42 / hour. A fully billed 7-hour day at the floor is $527.96.
- With a 20% buffer, the quoting rate is $90.51 / hour.
The naive method (48,000 ÷ 2,080) gives $23.08 an hour, about a third of the floor. Billable share alone moves the floor a lot with everything else held the same:
| Billable share | Billable hours | Rate floor |
|---|---|---|
| 50% | 770 | $90.51 |
| 60% | 924 | $75.42 |
| 70% | 1,078 | $64.65 |
A floor is not a price
The floor is the lowest rate at which the business pays for itself. What you charge also depends on your market, your track record and the value of the outcome to the client. Use the floor in two ways:
- As a filter. If a client's budget works out below your floor after fees, you're paying to do that job. Negotiate scope, pass on the fees, or say no.
- As a project check. Fixed-price projects hide your hourly rate. Use the project quote calculator to see what a fixed price works out to per hour after fees, and what happens if the work runs over.
Common mistakes
- Assuming 100% billable. Even a fully booked freelancer spends time on email, invoicing and admin.
- Forgetting slow months. A buffer above the floor is what carries you through a quiet quarter.
- Ignoring currency conversion. If you're paid in a currency you don't spend, the conversion spread is a fee too.
- Never recalculating. Re-run the numbers when your costs, hours or tax situation change, and at least once a year.