How to Set Your Freelance Hourly Rate (with a Worked Example)

Most new freelancers pick a rate by taking their old salary, dividing by 2,080 hours, and maybe adding a little. It feels fair, but it nearly always leaves you underpaid. As an employee, someone else paid part of your taxes, your health insurance and your equipment, and paid you for vacations and slow weeks. As a freelancer, all of that has to come out of your rate.

Here’s a simple way to work out a rate that actually covers your life, with a worked example you can copy.

1. Start with the income you want

Decide what you want to earn in a year, before taxes, as if it were a salary. If you’re leaving a job, your old salary is a reasonable starting point. In our example, the goal is to replace a $70,000 salary.

2. Add what an employer used to pay for you

An employer covers costs you never saw on your paycheck. Now they’re yours:

• The employer half of payroll tax. In the US, self-employed people pay both halves of Social Security and Medicare. The extra half is about 7.65% of your earnings, or roughly $5,400 on $70,000.
• Health insurance. This varies widely by age, location and plan. We’ll use $6,000 a year.
• Retirement. If your employer matched contributions, set aside the same amount yourself. A 3% match is about $2,100.

3. Add your business expenses

Laptop, software subscriptions, phone, internet, a website, accounting help, professional insurance and training all add up. Many freelancers spend a few thousand dollars a year. We’ll use $4,000.

That brings our example to about $87,500 a year the business has to bring in.

4. Work out how many hours you can really bill

This is where most rates go wrong. There are 2,080 working hours in a year, but you won’t bill anywhere near that many.

• Time off. Take out vacation, holidays and sick days. Six weeks off leaves 46 working weeks, or 1,840 hours.
• Unpaid work. Emails, invoicing, bookkeeping, marketing and finding new clients all take time nobody pays for. Many freelancers can bill only 50–70% of their working hours. At 60%, that’s about 1,100 billable hours a year.

If you already track your time, look at your real numbers instead of guessing. Your log shows exactly how many hours you billed last month.

5. Divide, then add a buffer

$87,500 ÷ 1,100 hours ≈ $80 an hour. That’s your break-even rate, the minimum that matches your old salary and benefits.

Then add a buffer of 10–20% for slow months, late payments and clients who leave. That puts our example at about $90 an hour. Compare that with the $34 an hour you’d get by dividing $70,000 by 2,080. It’s why so many new freelancers find themselves working more and earning less.

6. Check it against your market

The formula tells you what you need. The market tells you what clients will pay. Look at what other freelancers with similar skills and experience charge, on their websites, on freelance platforms and by asking people in your field.

• If your number is well above the market, look for ways to cut costs, raise your billable share or specialize in work that pays more.
• If your number is below the market, charge the market rate. There’s no prize for being the cheapest.

7. Raise your rate on a schedule

Review your rate at least once a year. Your costs go up, your skills improve and inflation eats into a rate that never changes. A good habit is to raise it for new clients first, then give existing clients a month or two of notice before the new rate applies to them.

Hourly or project pricing?

Hourly works well when the scope is unclear or keeps changing. For well-defined work, many freelancers quote a project price instead. You still need your hourly rate for that: estimate the hours, multiply by your rate and add a margin for the unexpected. Tracking your time on every project shows you how good your estimates really are.

Know your numbers with Wage Tracker Widgets

Setting a rate is much easier when you know where your hours really go. Wage Tracker Widgets for iPhone tracks your time with a simple timer, keeps every client separate with its own hourly rate, and shows your hours and earnings by day and week. A built-in tax set-aside shows how much of each payment to save. Premium adds reports of hours and earnings by week, month or year with a breakdown by client, so you can see who your most profitable clients are, plus PDF and CSV timesheets ready for invoicing.

There’s no account, and your work data stays on your device. Read our guide to tracking your work hours as a freelancer for the full system.

Download Wage Tracker Widgets on the App Store

Frequently asked questions

How do I calculate my freelance hourly rate?

Add the income you want to the costs an employer used to cover (the extra payroll tax, health insurance and retirement) and your business expenses. Divide by the hours you can realistically bill in a year, then add a buffer of 10–20%.

How many billable hours does a freelancer have in a year?

Often 1,000 to 1,300. After time off, many freelancers can bill only 50–70% of their working hours, because emails, invoicing and finding clients take time nobody pays for.

Should my freelance rate be higher than my old hourly wage?

Usually much higher. Your rate has to cover taxes, benefits, expenses and unpaid time that an employer used to pay for. Doubling your old hourly wage is a common starting point.

How often should I raise my freelance rate?

At least once a year. Raise it for new clients first, and give existing clients a month or two of notice.

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