How the freelance rate is worked out
Revenue needed = take-home ÷ (1 − tax rate) + expenses
Billable hours a year = billable hours a week × (52 − weeks off)
Hourly rate = revenue needed ÷ billable hours × (1 + margin)
Example
To take home 50,000 at a 25% tax rate you need 66,667 before tax, plus 6,000 of expenses: 72,667 a year. Billing 25 hours a week for 46 weeks is 1,150 hours, so the break-even rate is 63.19 an hour, and 69.51 with a 10% margin.
Day and project rates
Many freelancers quote a day rate or a fixed price instead. Multiply the hourly rate by your usual billable hours in a day, or by your estimate of the hours a project takes, plus some room for changes.
Frequently asked questions
Why is my freelance rate so much higher than an hourly wage?
Because a freelancer pays for things an employer would: holidays, sick days, equipment, software, insurance, pension and the hours spent finding work. Those unpaid hours and costs all have to come out of the hours you can bill.
How many billable hours a week is realistic?
Few freelancers bill 40 hours a week. Admin, sales, invoicing and learning take a big share of the week; 20 to 30 billable hours is common.
What should I include in expenses?
Everything the business pays for in a year: computer and phone, software subscriptions, coworking or home office costs, insurance, accountant fees, training, travel, and pension or health payments you make yourself.
What tax rate should I use?
Your rough total rate on profit: income tax plus any self-employment or social security contributions. If you're not sure, check your country's tax calculator or ask an accountant. The calculator uses one flat rate, so treat the result as a guide.