How to Set Your Freelance Hourly Rate

This guide is for new and existing freelancers who are unsure what to charge or suspect they are charging too little. You will learn a simple formula to calculate a minimum rate that pays your bills, how to check it against the market, and how to quote, raise and defend your rate with confidence. General information, not professional advice.

Why Most New Freelancers Undercharge

The most common mistake is taking an old salary, dividing it by the hours in a working year and charging that. It feels logical, but it leaves out almost everything an employer used to pay for. As a freelancer, you cover your own equipment, software, insurance, pension, holidays, sick days and tax admin. You also cannot bill every hour you work, because time goes on finding clients, answering emails, invoicing and learning.

• No paid leave: every holiday, public holiday and sick day is a day you earn nothing.
• Unbillable hours: marketing, admin, proposals and bookkeeping often take a large share of the week.
• Business costs: tools, subscriptions, equipment, training, accounting help and insurance come out of your income.
• Employer extras: retirement contributions, some taxes and benefits that an employer may have covered are now yours to fund.
• Gaps between clients: few freelancers are fully booked all year, especially at the start.

Once you account for these, a fair freelance hourly rate is usually much higher than the equivalent salary divided by hours. That is not greed; it is arithmetic. The formula in the next section makes it concrete.

Calculate Your Minimum Viable Rate

Your minimum viable rate is the lowest hourly figure that covers your personal income needs, your business costs and an allowance for tax. Below this, you are effectively paying to work. Follow these steps with your own numbers.

1. Set your target personal income Decide what you need to take home over a year to cover living costs, savings and retirement contributions. Use your real household budget, not a guess.
2. Add yearly business costs List software, equipment replacement, phone and internet share, insurance, training, accounting help, professional memberships and marketing. Add them up for the year.
3. Allow for tax Add an estimate of income tax and any social contributions you will owe as self-employed. Rates vary greatly by country and income level, so check your tax authority's guidance or ask an accountant for a realistic percentage.
4. Work out your billable hours Start with working weeks in a year after holidays, public holidays and sick days. Multiply by the hours per week you can realistically bill, not the hours you will work.
5. Divide Total needed (income plus costs plus tax) divided by billable hours equals your minimum viable hourly rate.

Here is a worked example using round, illustrative numbers. Replace each figure with your own; the method is what matters, not these amounts.