How to Calculate Your Freelance Hourly Rate

A step-by-step method for working out the hourly rate you need as a freelancer, with a worked example and a free calculator.

Start from what you want to take home, not what sounds competitive

Picking a rate by asking what other freelancers charge, or what sounds "reasonable," skips the one number that actually matters: what you need to earn to cover your life, your tax bill and your business costs. Working backwards from that number gives you a rate that is a floor, not a guess — the point below which you are losing money, even if the job looks busy.

The four numbers you need

Take-home pay. What you want left over per year after tax, for yourself — not your revenue target.

Tax rate. Your effective rate, not your top bracket: total tax paid divided by total income. If you are not sure, 25–30% is a common starting estimate in many countries, but check your own numbers with the tax calculator or an accountant.

Business expenses. Software, equipment, insurance, coworking space, professional fees — the costs of running the business, separate from your own pay.

Billable hours per year. Not the hours you work. The hours you can actually invoice.

Why billable hours are lower than hours worked

A 40-hour week does not mean 40 billable hours. Admin, invoicing, replying to email, pitching for the next job, and gaps between contracts all take time you cannot bill for. Most freelancers plan around 20 to 30 billable hours a week rather than 40 — the exact number depends on how much of your own admin and sales work you do, and how steady your pipeline is.

This is the lever that moves your rate the most. Lower your billable hours in the calculation and the rate climbs fast, because the same annual costs are being spread across fewer hours.

The formula

Gross your take-home pay up for tax, add your business expenses, then divide by the hours you can actually bill in a year:

rate = (take-home ÷ (1 − tax rate) + expenses) ÷ billable hours per year

Billable hours per year is (52 − weeks off) × billable hours per week.

Worked example

A freelancer wants $70,000 take-home pay, has $8,000 a year in business expenses, expects a 25% effective tax rate, takes 4 weeks off, and can bill 25 hours a week.

Billable hours per year: (52 − 4) × 25 = 1,200 hrs
Grossed-up for tax: $70,000 ÷ (1 − 0.25) = $93,333.33
Plus expenses: $93,333.33 + $8,000 = $101,333.33
Minimum hourly rate: $101,333.33 ÷ 1,200 = $84.44/hr
Day rate (8 billable hours): $675.56

Run your own numbers in the hourly rate calculator — it does this same calculation instantly and includes an estimated tax breakdown.

Common mistakes

Using 40 hours a week. Almost nobody bills 40 hours a week consistently; the rate comes out too low and you fall short of your take-home target.

Forgetting to gross up for tax. Dividing your take-home target straight by hours, with no tax adjustment, understates the rate you actually need.

Leaving out expenses. Software, insurance and equipment are real costs of doing business and belong in the calculation, not absorbed silently out of your take-home pay.

Treating it as the rate to quote. This is a floor. Quote above it to leave room for discounts, slow months and clients who pay late — see how to price a project for the next step.

Related tools

Price your work