intajThe short answer
Add the income you want to earn in a year to your business costs, then divide by the hours you can actually bill in a year. The result is your minimum hourly rate: the floor, not the price you should aim for.
Minimum hourly rate = (yearly income goal + yearly business costs) ÷ billable hours per year
Step 1: Decide your yearly income goal
Start with what you want to take home before tax for the whole year. If you are leaving a job, your old gross salary is a fair starting point. Remember that as a freelancer you also pay for things an employer used to cover, such as paid holidays, sick days and retirement savings.
Write one number down. You can change it later; the point is to make the goal visible instead of guessing a rate.
Step 2: Add your business costs
List everything the business pays for in a year, even small monthly subscriptions. Typical costs:
- Software and subscriptions: design tools, accounting, cloud storage, email.
- Equipment: a laptop or camera spread over the years you will use it.
- Fees: payment platforms, bank charges, marketplace commissions.
- Learning: courses, books and conference tickets.
- Workspace: coworking, internet, a share of your phone bill.
Most freelancers underestimate this number. Look at last year's bank statements if you have them.
Step 3: Count your billable hours honestly
This is where most rates go wrong. A 40-hour week is not 40 billable hours. Emails, proposals, invoicing, chasing payments, finding clients and learning are real work that no client pays for directly.
Billable hours per year = (52 − weeks off) × hours worked per week × billable share
- Weeks off: holidays, public holidays and sick days. Five to eight weeks is common.
- Hours per week: what you can sustain, not your best week.
- Billable share: the part of those hours you can invoice. Most freelancers bill 50 to 65 percent.
If you are not sure about your billable share, track every hour for two weeks and mark which ones a client paid for. The answer is usually lower than you expect.
Step 4: Divide (a worked example)
Here is the calculation with round numbers. Use your own currency; the method does not change.
- Income goal: 60,000 a year.
- Business costs: 6,000 a year.
- Weeks off: 6, so you work 46 weeks.
- Hours per week: 40, billable share: 60 percent.
- Billable hours: 46 × 40 × 0.6 = 1,104 hours.
- Minimum rate: 66,000 ÷ 1,104 = about 60 per hour.
Divide 60,000 by every hour in a 40-hour year (2,080 hours) instead and you get about 29 per hour. That is half of what you need, and the gap only shows up at the end of the year.
Your rate is a floor, not a price
The number from step 4 is the least you can charge and still reach your goal. It does not include profit, taxes or slow months. Before you quote, compare it with what clients in your field and country usually pay. If the market pays more, charge more. If the market pays less, you need a higher billable share, lower costs or a different kind of client.
Many freelancers add a buffer of 15 to 25 percent on top of the floor for revisions, scope creep and the months when work is quiet.
Turn it into day rates and project prices
Some clients prefer a day rate or a fixed price. Both come from the same number.
- Day rate: hourly rate × the hours in your working day. With the example above, 60 × 8 = 480 per day.
- Project price: estimated hours × hourly rate × 1.2 for revisions and calls. A 30-hour project becomes 30 × 60 × 1.2 = 2,160.
Fixed prices reward you when you work fast and punish you when a project runs long, so the estimate matters as much as the rate.
Check every project after it ends
A rate only helps if projects actually earn it. After each project, work out what it really paid per hour: what you were paid, minus project costs, divided by the hours you logged. A fixed-price job that ran long can quietly pay half your rate. Over a few months this shows which clients and which kinds of work are worth keeping.
Common mistakes
- Dividing by every hour you work instead of the hours you can bill.
- Forgetting holidays and sick days, so the year has 52 working weeks.
- Leaving out small subscriptions and fees that add up over twelve months.
- Never raising the rate. Review it every six to twelve months.
- Not tracking hours, so you never learn your real billable share.
Questions
Should I show my hourly rate to clients?
Not always. Many freelancers use the hourly rate privately to set day rates and project prices, and quote those instead. The hourly number is your internal check.
What if the result is much higher than what clients pay?
Look at the inputs before lowering the rate. A higher billable share, fewer tools or a niche with bigger budgets often closes the gap. Charging below your floor means working more hours for the same year.
How often should I recalculate?
When your costs change, when you take on a new kind of work, and at least once a year.
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