How to set your freelance hourly rate

Break-even hourly rate = (salary you want + yearly business costs) ÷ billable hours per year. Rate with profit = break-even rate ÷ (1 − margin).

A tempting shortcut is to take a salary, divide it by 40 hours × 52 weeks and call that your rate. Freelancers are not paid for every hour they work. Emails, quotes, marketing, bookkeeping and unpaid revisions all take time, and the rate you charge for paid hours has to cover them.

Step 1: the salary you want

Pick the yearly amount you want the business to pay you. It is your figure, not an industry rate. Taxes are not included here; if you are thinking of a take-home amount, check with an accountant what it means before tax.

Step 2: your yearly business costs

Add up a year of costs: equipment (what you paid ÷ years of use), software, insurance, website, marketing, phone, accounting and training. Photographers can follow how to calculate your photography cost of doing business for this step.

Step 3: your billable hours

Billable hours are the hours a client pays for. Billable hours per year = working weeks × billable hours a week. Count working weeks after holidays and sick days. For billable hours a week, look back at a few real weeks and count only the hours you could have invoiced.

Step 4: break-even rate and profit

The break-even rate pays your salary and costs and nothing more. A margin on top gives the business money for slow months, new equipment or savings. Dividing by (1 − margin) makes the margin a share of what you charge.

Worked example (fictional numbers)

A freelance designer. These numbers are an example, not a suggested rate:

Salary wanted: $42,000 a year
Business costs: $6,000 a year
45 working weeks × 20 billable hours = 900 billable hours
Margin: 15%

Break-even rate = ($42,000 + $6,000) ÷ 900 = $48,000 ÷ 900 = $53.33 an hour.

Rate with a 15% margin = $53.33 ÷ 0.85 = $62.75 an hour, using the unrounded break-even rate. Over 900 hours that brings in $56,475.00, which is $8,475.00 more than salary and costs.

Why billable hours matter most

Keep everything the same but assume 30 billable hours a week instead of 20: 45 × 30 = 1,350 hours, and the break-even rate falls to $48,000 ÷ 1,350 = $35.56. The salary and costs did not change; only the assumption about paid hours did. If you set your rate on 30 billable hours a week but only invoice 20, you fall short of your salary. Use the hours you really invoice.

Quoting by the day or the project

An hourly rate is also the building block for day rates and project quotes: estimate all the hours a job takes, including prep, travel and revisions, and multiply. The day rate vs hourly calculator shows what a day rate really pays per hour worked.

Check it again later

Re-run the numbers when your costs change, when you add or drop a service, or when your billable hours turn out different from your estimate.

Run your own numbers in the freelance hourly rate calculator.