Most freelancers set their first rate by taking a salary they’d want and dividing by 2,000 hours. It feels like a nice round number. It’s also the single biggest reason freelance businesses fail in year two.

The problem: a $80,000 salary doesn’t cost the employer $80,000. It costs them more like $115,000 once you add payroll taxes, benefits, paid time off, equipment, software, training, and the 40% of the day that isn’t billable. As a freelancer, you are the employer. Your rate has to pay for all of it.

The honest formula

Start with what you actually want in your pocket, then work backwards:

Gross revenue needed
   = (Take-home ÷ (1 − tax rate)) + business expenses

Hourly rate
   = Gross revenue needed ÷ billable hours per year

Two things trip people up here:

  1. Tax is a percentage of pre-tax income, not of take-home. If you want $60k in your pocket and your combined tax + self-employment rate is 30%, you need $60,000 ÷ 0.70 = $85,714 pre-tax — not $60,000 × 1.30 = $78,000.
  2. Billable hours are a small fraction of working hours. More on this below.

The billable-hours trap

You will not bill 40 hours a week. Even at 40 hours at your desk, you’ll spend big chunks on:

  • Sales calls, proposals, and follow-ups
  • Invoicing, chasing payment, and accounting
  • Learning new tools, reading, and portfolio work
  • Unpaid revisions and scope negotiation
  • Client comms that never make it onto a timesheet

Most sustainable freelancers bill 50–70% of their working hours. Below that and you’re not selling enough; above 70% is only realistic if you have a solid retainer book.

Multiply it out. 46 working weeks × 40 hours × 60% billable = 1,104 billable hours per year. Not 2,000. Not 1,800. Roughly half of what a salaried job assumes.

Worked example

Say you want $60,000 take-home, expect 30% tax, and budget $6,000/year in business expenses.

LineAmount
Take-home target$60,000
Pre-tax income needed$85,714
+ Business expenses$6,000
= Gross revenue target$91,714
÷ Billable hours (46 × 40 × 60%)1,104
= Hourly rate$83

Round up to $85 or $90. Clients don’t care about odd rates; you do.

Try it in the freelance rate calculator with your own numbers. If the answer feels too high — that’s the point. It’s what you need to charge, not what feels safe.

Common mistakes

Forgetting equipment. A $2,000 laptop that lasts 3 years is $667/year in real expenses. Add insurance, phone, coworking, and it climbs.

Ignoring holiday. If you plan to take 4 weeks off a year, you’re only working 48 weeks. If you also want to be sick occasionally, 46 is more honest.

Confusing gross with net. A client paying you $10k gross is not $10k in your pocket. Depending on jurisdiction, expect to lose 25–45% of it to taxes and social contributions. Use the income tax calculator for a rough check.

Quoting excluding tax. In VAT jurisdictions, you generally add VAT on top of your rate. If you quote $100/hour, invoice £120/hour with 20% VAT. See how VAT actually works for the mechanics.

Turning it into other units

Once you know your hourly rate:

  • Day rate: hourly × 7 hours (typical billable day). Many freelancers charge a small premium here because a day-long booking blocks other work.
  • Weekly rate: typically day rate × 5, sometimes with a small discount.
  • Project rate: estimated hours × hourly, plus a 20–40% cushion for scope creep and revisions.
  • Retainer: minimum monthly hours × hourly, usually at a 10–15% discount in exchange for predictable revenue.

The number your calculator spits out will probably feel high. Charge it anyway. Freelancers who cave on rate spend year two exhausted and year three back in a salaried job. The ones who don’t build something sustainable.