How to set your freelance hourly rate

Why salary divided by 2,080 is wrong

That division assumes every working hour is paid, that an employer covers your tax, holidays, sick days and equipment, and that work arrives without you finding it. As a freelancer none of that holds. You pay for the hours you spend pitching, invoicing and fixing things, you pay your own tax, and you buy your own laptop.

Step 1: count the hours you can actually bill

Say you plan to work 48 weeks a year, 35 hours a week. That is 1,680 hours. But not all of them go to clients: pitching, admin, bookkeeping and replying to emails are real work that nobody pays for. A common starting point for a solo freelancer is that about 60% of working time is billable, and if you have never measured it, assume 50 to 60% rather than 80%.

• Working hours: 48 weeks × 35 hours1,680
• Billable share60%
• Billable hours per year1,008

Step 2: work out what you must bill in a year

Start from what you want to take home, $60,000. Two things come out of every invoice before it is yours, and a third is a cost you must cover:

• Tax: we set aside 25% of each invoice. In the US, self-employment tax alone is 15.3% (12.4% Social Security plus 2.9% Medicare), according to the IRS, and that comes before income tax. So 25% can be low, and the right figure depends on your income, your state and your deductions. Ask an accountant.
• A buffer: 10% of each invoice for quiet months, late payers and unpaid time off. It is not profit; it is why a slow month is an inconvenience instead of an emergency.
• Business expenses: $6,000 a year for software, equipment, insurance and the like.

Tax and the buffer together take 35% of each invoice, so you keep 65%. To end up with $60,000 you need to bill $60,000 ÷ 0.65 = $92,308, and then add the $6,000 of expenses:

• $60,000 take-home ÷ (1 − 0.25 − 0.10)$92,308
• Business expenses+ $6,000
• You need to bill$98,308

Step 3: divide

$98,308 ÷ 1,008 billable hours = $97.53 an hour.

That is more than three times the $28.85 you get from salary divided by 2,080. Neither number is "greedy". The first one is what the year costs you; the second one forgot most of it. It is a floor, not a price: it says what the year needs to average, and tells you nothing about what a particular piece of work is worth, which is often more.

Which assumption moves the rate most?

Change one input at a time on the same example:

• As above (60% billable, 25% tax, 10% buffer)$97.53
• 80% of your time is billable$73.15
• Only 40% is billable$146.29
• Tax reserve 30% instead of 25%$105.16
• No buffer$85.32

The billable share dominates. Going from 60% to 40% adds $49 an hour. That is why a freelancer who is honest about admin time quotes a very different rate from one who is not, and why finding clients faster is worth as much as raising your price.

Mistakes that keep rates too low

1. Assuming 100% of your hours are billable. Track a typical month once. Most people are surprised.
2. Forgetting unpaid time off. A week off is a week with no income, and the example above only plans for 48 working weeks for that reason.
3. Pricing from what your last employer paid. A salary includes benefits, tax handling and paid time you now fund yourself.
4. Treating the floor as the price. Quote on the value of the work when you can, and use the rate as the number below which you say no.