The most common pricing mistake new freelancers make is dividing a salary by 2,080 hours. That gives an employee’s hourly rate, not a freelancer’s. Freelancers pay their own business costs and are only paid for the hours they bill, so the same yearly income needs a higher rate.
Step 1: Decide on your income goal
Start with the yearly income you want before income tax. If you are leaving a job, your old salary is a reasonable starting point.
Step 2: Add your business expenses
List what the business pays for in a year: software, equipment, insurance, professional fees, a workspace, and anything an employer used to cover. Add self-employment taxes, health insurance, or retirement contributions here if you want the rate to cover them.
Step 3: Count your billable hours
Billable hours = (52 − weeks off) × hours per week × billable share
Weeks off include vacation, holidays, and sick time. The billable share is the part of your working time you can invoice. The rest goes to finding clients, quoting, invoicing, and learning.
Step 4: Divide
Hourly rate = (income goal + expenses) ÷ billable hours
Worked example
| Item | Value |
|---|---|
| Income goal | $65,000 |
| Business expenses | $9,000 |
| Weeks off | 5 |
| Hours per week | 35 |
| Billable share | 60% |
- Working weeks: 52 − 5 = 47.
- Billable hours: 47 × 35 × 60% = 987 hours.
- Revenue needed: $65,000 + $9,000 = $74,000.
- Hourly rate: $74,000 ÷ 987 = $74.97. An 8-hour billable day is about $599.76.
The same $65,000 as an employee salary works out to $31.25 an hour over 2,080 hours. The freelance rate is more than twice as high, and that is expected: it covers expenses, time off, and unbilled work.
Sanity checks
- Compare with the market. If your rate is far above what clients pay for similar work, look at expenses, billable hours, or the income goal.
- Track real billable time. After a few months, replace your estimate with your actual billable share.
- Price projects from hours. Estimate the billable hours a project needs and multiply by your rate, with a buffer for revisions.
Tools
- Freelance rate calculator: hourly and day rate from your numbers, with a chart of billable and unbilled time.
- Utilization rate calculator: measure how much of your available time you actually bill.
- Salary to hourly calculator: the employee hourly rate behind a salary, for comparison.
- Business days calculator: count working days in a period you plan to bill.
About this guide. Written for US employees as general information, not legal or tax advice. Rules can differ by state, employer, and contract. See our methodology and disclaimer.