How to Calculate Your Freelance Hourly Rate

Start with your desired annual income

Decide how much you want to earn annually from your freelance work. This should be a realistic figure based on your skills, experience, and market rates. It is the amount you want to take home after business expenses but before taxes — or you can include taxes in the calculation, which is what we do below.

Add your annual business expenses

List all the costs of running your freelance business: software subscriptions, equipment, internet, office space, professional development, insurance, and any subcontractors. Add these to your desired income to get your base annual cost.

Add a tax reserve

As a freelancer, you are responsible for your own taxes. Add a percentage to cover income tax and self-employment tax. A common starting point is 25-35% of your base cost, but the actual percentage depends on your location and income level. This is a planning estimate, not a tax calculation — consult a tax professional for your specific situation.

Calculate your total billable hours

Estimate how many hours per week you can realistically bill to clients, then multiply by the number of working weeks per year. Be honest — freelancers typically spend time on admin, marketing, and non-billable work. If you work 40 hours per week but only 25 are billable, use 25. Subtract any planned vacation time.

Divide to get your minimum rate

Divide your total annual cost (income + expenses + tax reserve) by your total billable hours. This is your minimum hourly rate — the rate you need to charge to meet your income goal. Charging below this rate means you will not meet your financial target.

Add a profit buffer for your target rate

Your minimum rate covers your costs. Your target rate should include a profit buffer — typically 10-20% on top of your minimum. This gives you room to absorb unexpected expenses, take on pro bono work, or invest in growing your business. Your target rate is what you should quote to new clients.

Checklist

• Desired annual income defined
• Annual business expenses listed and totaled
• Tax reserve percentage estimated
• Realistic billable hours per week calculated
• Working weeks per year determined (accounting for time off)
• Minimum hourly rate calculated
• Target hourly rate with profit buffer set