What hourly rate do you need to charge?
Most rates are set by copying someone else. This one starts from what you need to earn and works backwards.
Hourly rate you need
—
Day rate at that hourly rate
—
Billable hours per year
—
Formula: (target income + expenses) ÷ (billable days × billable hours)
What the number assumes
Billable days are what you actually invoice, not working days. Holidays, sick days, admin, sales and unpaid rework all come out first. 180 is a realistic figure for a full-time freelancer; 220 is optimistic.
The formula defines the arithmetic. It does not define your business. A figure from this page is a starting point for a decision rather than the decision.
How to work out the hourly rate you need
The rate you need is the money you want to earn plus the money the business costs, divided by the hours you can actually invoice. Everything hard about the calculation is in the last figure, and almost everyone gets it wrong in the same direction.
The arithmetic runs the other way round from how people usually think about rates. Most freelancers start from what others charge and work forwards; this starts from what you need and works backwards. The second number is the floor. What the market will bear is a separate question, and if the market rate is below your floor then the business does not work at that volume, however many clients you find.
Billable days are not working days
A year holds roughly 250 working days. Take off statutory holiday and a normal amount of leave and you are near 225. Then take off the days that are real work but nobody pays for: proposals, invoicing, chasing invoices, tax, tooling, learning, marketing, and the gaps between projects. For most independent people that is a fifth to a quarter of the remainder.
That leaves somewhere near 180 invoiceable days for a full-time practice. Using 250 instead, which the arithmetic quietly invites, understates the necessary rate by nearly 40 per cent, and the shortfall shows up as a year that felt busy and paid badly.
The same applies within a day. Six invoiceable hours out of eight is a good day, not a bad one. Assuming eight makes the rate a third too low.
Which expenses belong in the calculation
Everything the business pays for that is not your income: software subscriptions, hardware amortised over its life, insurance, accounting, workspace, professional membership, hardware failures, and a provision for the training that keeps you employable. Add a line for the equipment you will need to replace this year even if it has not broken yet.
Leave out anything you would pay for anyway as a private person. The point of this figure is not to reach a big number, it is to reach a true one. A rate built on inflated expenses is as unsellable as one built on none.
What to do when the number is higher than the market
This happens, and it is information rather than a verdict. There are three honest responses: raise the value of what you deliver so the rate is defensible, lower the target income for a defined period while you build towards it, or change the shape of the business so fewer hours have to carry the year, retainers, productised work, or something that sells more than once.
The dishonest response is to keep the rate and quietly assume more billable days. That is the same arithmetic with a worse input, and it is the most common reason a full calendar produces an empty account.
Questions
Why is my calculated rate higher than the market rate?
Usually because the billable-day figure is honest for the first time. If the market will not pay it, the answer is fewer unbillable hours or a different market, not a lower rate.
Does this include tax?
No. Target income here means what you need before income tax. Add your own tax rate on top, or treat the target as pre-tax profit.
How many billable days should I assume in a year?
For a full-time freelancer, 180 is realistic and 220 is optimistic. A year has about 250 working days before holiday. Take off 25 for leave, some for illness, and a substantial share for sales, admin, invoicing and the work of running the business, and the invoiceable remainder is usually between 170 and 190.
Should I raise my rate or work more hours?
Raise the rate. Hours are capped and the cap is lower than it looks, because the last hours of a long week are the least productive and the most expensive in every other sense. A 10 per cent rate rise applied to the same year is pure margin, while 10 per cent more hours is 10 per cent more of everything, including the fatigue.
Does this rate include tax?
No. It covers your target income before personal income tax and the business expenses you entered. Work out your tax position separately and treat the result as the income figure you feed in here. The rate that produces a given take-home is considerably higher than the rate that produces the same number on paper.
Related calculators
Same corner of the arithmetic, different question.