Why your rate has to be higher than a wage
An employee is paid for every hour at work, plus vacation. A freelancer is paid only for billable time and also funds their own equipment, insurance and retirement. That is why dividing a salary by 2,080 hours gives a rate that will leave most independents well short of the income it seems to promise.
The billable share is the input most people get wrong. Finding clients, writing proposals, invoicing and learning all take time. If you are unsure, track a typical month, then check the figure with the billable utilization calculator.
The formulas
Revenue needed
Revenue = Take-home goal ÷ (1 − Tax set-aside ÷ 100) + Expenses
Billable hours
Billable hours = Weeks × Hours per week × Billable share ÷ 100
Hourly rate
Rate = Revenue ÷ Billable hours
The set-aside is applied to profit, not revenue, because business expenses are generally paid before you calculate profit. This is a planning estimate only and does not calculate your actual tax.
Worked example
A designer wants $70,000 of take-home pay and has $12,000 of expenses. They set aside 25% of profit, work 46 weeks at 40 hours, and can bill 65% of their time.
- Profit before tax: $70,000 ÷ 0.75 = $93,333.33, so $23,333.33 goes aside for tax.
- Revenue needed: $93,333.33 + $12,000 = $105,333.33, or $8,777.78 a month.
- Billable hours: 46 × 40 × 0.65 = 1,196 hours.
- Rate: $105,333.33 ÷ 1,196 = $88.07 an hour.
Treat the result as a floor
This is the minimum rate that meets your goal if everything goes to plan. It includes no margin for slow months, late payers or unexpected costs, so most freelancers quote above it. Clients pay for results, too, so experts with scarce skills can charge well beyond a cost-based figure. If you sell by the project, turn the hourly number into a quote with the project pricing calculator.
Frequently asked questions
What tax percentage should I enter?
That depends on where you live, your income and your business structure, and rules change. This calculator uses your own figure and makes no assumptions about tax law. A tax professional can suggest a suitable set-aside.
What is a realistic billable share?
Many solo professionals bill well under 100% of their hours, since selling and admin take real time. Your own time records are the best guide. Start with a cautious figure if you are new or still building your client base.
Should I match what others charge?
Market rates are useful as a reality check, but they do not reflect your costs or goals. If your floor is above the market, you may need to specialize, reduce costs or adjust your income goal.
Should I bill by the hour at all?
Hourly billing is simple and limits your risk on unclear scopes. Fixed fees can pay better when you are fast and the scope is well defined. Use this rate as your internal measuring stick either way.