How to Set Your Freelance Rate Without Guessing
Most people set their first freelance rate by taking their old salary, dividing by 2,000, and maybe rounding up. It feels reasonable. It is also how a lot of freelancers end up working harder than they did as employees for less money.
The problem is not the arithmetic. It is everything the arithmetic leaves out.
Start from what you want to keep, not from a rate
Work backwards. The number that matters is your target take-home income: the money you want left over after the business has paid for itself and you have paid your taxes. Pick a real figure. A common starting point is what a salaried job in your field would pay, because that is the bar you are choosing to leave.
Everything else is a deduction between that number and the rate you charge.
The four things that eat the gap
1. Time you cannot bill
You do not get paid for finding clients, writing proposals, sending invoices, chasing late payers, doing your books, or learning the skills that keep you hireable. You also do not get paid to redo work a client changed their mind about.
Add it up honestly and most sustainable freelancers bill 55% to 70% of the hours they work. Not 100%. If you plan a 40-hour week, 24 to 28 of those hours are billable in a good week.
2. Time off nobody pays for
An employed job quietly includes paid holidays and sick days. As a freelancer, a week off is a week with no income. Start from 52 weeks and subtract your holiday plus a buffer for illness — something like 46 working weeks is realistic.
3. Costs an employer used to absorb
Your old employer paid part of your payroll taxes, contributed to a pension, bought your laptop, covered software licences and insurance, and rented the desk you sat at. Now that is all you. Total up a realistic yearly figure for software, hardware amortised over a few years, an accountant, insurance and a workspace.
4. Tax on the profit
Whatever is left after costs is profit, and profit is taxed — income tax plus self-employment or social security contributions. The effective rate varies a lot by country and income, but 25% to 40% is a common range. Confirm yours with an accountant.
Put it together
The maths, in order:
- Working hours = weeks worked × days per week × hours per day
- Billable hours = working hours × your billable percentage
- Revenue you need = ( target income ÷ (1 − tax rate) + yearly costs ) × (1 + a profit buffer)
- Hourly rate = revenue you need ÷ billable hours
The profit buffer in step 3 — 10% to 20% — covers the gaps between contracts, the client who pays 60 days late, and money to reinvest. Without it, one slow month erases your margin.
Run these numbers and the rate almost always comes out higher than the salary-divided-by-2,000 shortcut. That is the point. The shortcut was ignoring tax and unbillable time.
Sanity checks
- Watch the effective rate. Divide the revenue you need by every hour you work, not just the billable ones. That is the honest figure for what an hour of your time actually has to earn.
- If the number feels uncomfortable to say out loud, that usually means your previous rate was too low, not that this one is wrong.
- Quote a day rate for longer jobs. Clients anchor to it more easily than a large hourly figure.
When you are comparing against a salary
If a client offers you a permanent role, or you are weighing a contract against a job, convert both to the same basis before deciding — an hourly to salary conversion with your real hours and weeks. Remember the contract rate should sit well above the salary’s hourly-equivalent to be worth it, for all the reasons above.
Then run your own situation through the freelance rate calculator and adjust the inputs until the plan holds together.