How to Set Your Freelance Hourly Rate

Setting your freelance hourly rate isn't about what others charge — it's about what you need to earn to cover your costs, pay your taxes, and build a sustainable business.

Step 1: Calculate your annual income target

Start with the salary you'd want at a full-time job, then multiply by 1.25–1.4x to account for benefits you no longer receive (health insurance, retirement matching, PTO). If you'd want $80K at a job, your target is $100K–$112K.

Step 2: Factor in non-billable hours

You won't bill 100% of your working hours. Administrative work, marketing, learning, and business development all take time. Most freelancers bill 60–75% of their working hours. If you work 2,000 hours/year, you might only bill 1,200–1,500.

Step 3: Add business expenses

Software subscriptions, hardware, insurance, internet, phone, office space — these are real costs that your rate must cover. Most freelancers have 10–25% of revenue going to expenses.

Step 4: Set aside for taxes

As a self-employed person, you pay self-employment tax (15.3%) plus federal and state income tax. Total tax burden is typically 25–35% of net income. This must be built into your rate.

Step 5: Add profit margin

Profit isn't optional — it's what allows you to invest in growth, handle slow months, and build wealth. A 15–25% profit margin is healthy for most freelancers.

The formula

Hourly rate = Annual target ÷ (Billable hours × (1 - Expense%) × (1 - Tax%) × (1 - Profit%))

Use our Hourly Rate Calculator to do this math instantly with your specific numbers.

Common mistakes

• Copying others: Your costs, tax situation, and goals are different
• Ignoring taxes: Setting aside 25–35% isn't optional
• Forgetting expenses: Software, hardware, insurance add up fast
• Billable hour overestimation: New freelancers often bill less than 50%