How the rate is calculated
- Add your desired income and annual business expenses to get the revenue you actually need.
- Apply a buffer for slow months, unpaid invoices and negotiation room — 10–20% is typical.
- Divide by your realistic billable hours per year, not your total working hours. Admin, proposals and calls aren't billable.
Why "billable hours" isn't 40 a week
Most freelancers bill 20–30 hours in a 40-hour working week. The rest goes to invoicing, client calls, proposals and finding the next project. Using your full working hours as the divisor is the single most common reason freelance rates end up too low.
Worked example
Target income $60,000, expenses $4,000, 46 working weeks, 25 billable hours a week, 15% buffer: revenue needed is $73,600, divided by 1,150 billable hours — a minimum rate of roughly $64/hr.
Three worked examples
The formula is the same for everyone, but the answer changes a lot with income goals and hours. Here are three freelancers, with every figure in one currency and before tax:
- Part-time writer: wants $24,000, has $1,500 of expenses, works 48 weeks at 15 billable hours a week, with a 10% buffer. Revenue needed is $28,050 over 720 billable hours, so the minimum rate is $38.96 an hour.
- Designer: wants $45,000, has $3,000 of expenses, works 44 weeks at 20 billable hours, with a 10% buffer. $52,800 over 880 hours is $60.00 an hour.
- Developer: wants $90,000, has $6,000 of expenses, works 46 weeks at 25 billable hours, with a 15% buffer. $110,400 over 1,150 hours is $96.00 an hour.
What moves your rate the most
Billable hours matter more than any other input. If the designer above bills 25 hours a week instead of 20, the same targets need only $48.00 an hour, because the costs are spread over 1,100 hours instead of 880. Removing the buffer entirely drops that designer's rate from $60.00 to $54.55, but it leaves no room for a slow month or a late-paying client. Raising the income target by 10% raises the rate by about 9%, a little under 10%, because expenses stay fixed.
Turning an hourly rate into day and project rates
To get a day rate, multiply your hourly rate by the hours you can really bill in a day, usually five or six rather than eight. At $64 an hour and six billable hours, that is $384 a day. For a fixed-price project, estimate the hours honestly, multiply by your rate, and add a margin of 15–25% for revisions and scope creep. Never quote below your floor just to win the work, because a low first price tends to become the price the client expects from then on.
Common mistakes
- Dividing by 2,000 hours. That assumes you bill every working hour of the year, which almost nobody does.
- Forgetting unpaid time. Holidays, sick days, admin, invoicing and finding clients all come out of your working weeks.
- Ignoring tax. Your target should be what you keep. Check it in the take-home pay calculator.
- Ignoring platform fees. If you sell through Upwork or Fiverr, build the cut into your rate using the net earnings calculator.
- Never raising your rate. Costs and skills both grow, so your price should too.
How often to revisit your rate
Recalculate at least once a year, and again whenever your expenses change, you move to a different type of work, or your real billable hours differ from the plan. After a quarter of actual work, use the hours you really billed rather than the hours you hoped for. Most people find the true number is lower than planned, which pushes the rate they need up. The step-by-step rate guide walks through the whole process.