To set your freelance hourly rate, work backward from the money you actually need: add the take-home income you want, your business expenses, and your taxes to find the revenue you must earn in a year, then divide that by the hours you can realistically bill (not the hours you work) and add a risk premium on top. That single number is your floor. Everything below it costs you money; everything above it is where a healthy freelance business lives.
Most freelancers set their rate by guessing, copying a competitor, or converting an old salary. All three tend to underprice the work because they ignore the costs an employer used to absorb. The method below rebuilds the number from your real situation, so the rate you quote is defensible instead of arbitrary.
Why can't I just convert my salary to an hourly rate?
A salary is only part of what an employer spends on you. On top of the paycheck, they typically covered payroll taxes, some benefits, paid time off, equipment, software, and the cost of keeping you busy between projects. As a freelancer, all of that becomes your expense. Dividing a former salary by 2,080 hours (a standard full-time year) produces a rate that quietly loses money the moment you account for taxes and unbilled time.
Rule of thumb: your freelance rate needs to be meaningfully higher than the simple hourly version of a salary that felt comfortable, often well over 1.5x once benefits, taxes, and non-billable time are added back in.
Step 1: Decide your target take-home income
Start with the amount you want to keep for yourself over a year, after business costs but before personal taxes: the number that covers your rent, food, savings, and life. Be honest and specific. This is the anchor for everything that follows, so a vague figure produces a vague rate.
Step 2: Add your real business expenses
List everything it costs to run your practice for a year. This is money that leaves before you pay yourself, and it varies widely by field and market.
- Software, tools, and subscriptions you rely on
- Hardware and equipment, amortized over its useful life
- Health coverage and any retirement contributions you fund yourself
- Workspace, whether that is a coworking desk or a share of home costs
- Accounting, legal, insurance, and banking fees
- Marketing, a portfolio site, and professional development
- A buffer for slow months and late payments
Don't skip the invisible costs
The expenses people forget, like income insurance, professional memberships, or the day you lose to a failed project, are exactly the ones that erode margins later. If a cost is real and recurring, it belongs in this list.
Step 3: Account for taxes honestly
Self-employed people usually shoulder a larger tax burden than employees because they pay the full share of payroll or social-security contributions themselves, on top of income tax. The exact percentage depends on your country, income level, and how your business is structured, so treat any single number you read online as a starting point, not gospel. The safe habit is to reserve a portion of every payment the moment it lands and to confirm your real rate with a local accountant.
Taxes are not optional and they are not a surprise. Build them into the rate up front so a tax bill never eats a month of income you already spent.
Step 4: Use billable hours, not working hours
This is the step that trips up almost everyone. You do not get paid for the hours you spend finding clients, writing proposals, invoicing, answering email, or learning new skills, and you still need to fund the days you take off. A full working week rarely translates into a full billable week.
Plan conservatively. Many established freelancers bill in the range of 20 to 30 hours a week once real overhead is subtracted, and beginners often bill less while they build a pipeline. When you divide your yearly revenue target by billable hours, use a number you can sustain in an ordinary week, not your best week ever.
Step 5: Add a risk premium
Freelance income is lumpy. Projects end, clients pause, and invoices arrive late. A risk premium, a percentage added on top of the rate the raw math produces, turns those normal shocks into inconveniences instead of emergencies. It also funds the gaps between contracts that a salaried job would have paid through.
Putting it together
In plain terms: (target take-home income + business expenses + taxes) gives the revenue you need for the year. Divide that by your realistic annual billable hours to get a base rate, then multiply by one plus your risk premium. The output is the lowest rate at which the work makes sense. From there you can charge more for scarce skills, rush timelines, or high-value outcomes, but you should almost never charge less.
Because every input (your income goal, expenses, tax rate, and billable hours) is personal, there is no single "correct" freelance rate. Two people in the same field can land far apart and both be right. The goal is a number built from your reality, not a market average you hope covers your costs.
Run your own numbers
Rather than doing this by hand, plug your income goal, expenses, tax assumptions, and billable hours into a calculator and watch how each lever moves the rate. Seeing that a few unbilled hours a week can swing your rate substantially is the fastest way to understand why the number has to be built, not guessed.
Frequently asked questions
What is the basic formula for a freelance hourly rate?
Add your target take-home income, business expenses, and taxes to get the revenue you need for the year, divide by the hours you can realistically bill, then add a risk premium. The result is your floor rate, the point below which the work loses money.
How many hours can I actually bill as a freelancer?
Far fewer than you work. After sales, admin, invoicing, and downtime, most full-time freelancers bill somewhere in the range of 20 to 30 hours a week, not 40. Plan for the lower end when you start, because unbilled time is real time you still have to fund.
Should I match my old salary when I go freelance?
No. A salary hides the cost of benefits, payroll taxes your employer covered, paid time off, and equipment. Converting a salary straight to an hourly rate almost always underprices you. Rebuild the number from your real costs instead of copying an old paycheck.
How much should I set aside for taxes?
It varies by country and income, but self-employed people generally owe more than salaried employees because they cover the full payroll-tax share themselves. A common habit is reserving a meaningful chunk of every payment for taxes and confirming the exact rate with a local accountant.
Is it better to charge hourly or per project?
Calculate the hourly rate either way, because it is the unit that tells you whether a project is profitable. Once you know your hourly floor, you can quote a fixed project price by estimating the hours and adding margin, while still protecting yourself against scope creep.
How often should I revisit my rate?
Treat your rate as a living number. Review it at least once a year, and sooner if your costs, demand, or skill level change. Rates that never move quietly lose ground to inflation and rising expenses.
Put this into a real number
RateCalc turns your income goal, expenses, taxes, and billable hours into an hourly rate in about a minute.
Open the calculator