How the rate is worked out
A freelance rate has to cover three things an employee salary does not: your own business costs, the weeks you do not work, and the hours each week that no client pays for. The calculator uses:
- Billable hours a year = (52 - weeks off) x billable hours per week
- Break-even rate = (income you want + business costs) / billable hours a year
- Rate to charge = break-even rate x (1 + buffer / 100)
A worked example
A designer wants to take home $80,000 a year before tax. Software, a laptop, insurance and an accountant cost $9,000 a year. They plan six weeks off for holidays and sick days, and expect to bill 25 hours a week, with the rest going to sales and admin.
That gives 46 working weeks and 1,150 billable hours. To earn $89,000 from 1,150 hours they need about $77.39 an hour just to break even. With a 15% buffer for slow months, the rate to charge is about $89 an hour, or a day rate near $445.
Why the number is higher than you expect
Many people starting out divide the salary they had by 2,080, the hours in a full-time year. That leaves out holidays, costs and unbilled time, and it is the most common reason new freelancers run short of money in their first year. An employee earning $80,000 also gets paid leave, equipment and often pension and health cover. You pay for all of those yourself.
Tips for setting your rate
- Track your hours for a month to find your real billable share instead of guessing.
- Treat this rate as a floor. Price higher for rush work, small jobs and clients who need a lot of meetings.
- For fixed-price projects, estimate the hours, multiply by this rate and add room for changes.
- Review it every year as your costs and skills change.