How Much Should I Charge as a Freelancer?

Almost everyone sets their first freelance rate the same way: look at what other people seem to charge, pick something slightly under it so you don’t scare anyone off, and hope it works out. It usually doesn’t, and the reason is not that the number was too low in some abstract sense. It’s that the calculation ran in the wrong direction.

Market comparison tells you what a rate is. It cannot tell you what a rate has to be for you to still be in business in two years. Only one direction of the arithmetic does that: start with the money you need to end up with, add back everything that gets taken out on the way, and divide by the hours you can realistically sell.

The formula

                 take-home you need + tax + business overhead
hourly floor  =  --------------------------------------------
                          billable hours per year

In four steps:

1. Decide the take-home you need — the money that lands in your personal account after tax, to live on.
2. Gross it up for tax, because you pay that out of the business, not out of thin air.
3. Add annual business overhead — every cost you would not have if you did not freelance.
4. Divide by billable hours, which is a much smaller number than you think.

The output is a floor, not a price. More on that distinction at the end, because it is where most of the money actually is.

Step 1: the take-home number

Not what you’d like. What the year costs. Rent or mortgage, food, utilities, debt payments, health cover you now buy yourself, savings and retirement, and a line for the things that go wrong — a boiler, a laptop, a tooth. Add it up, then add the amount you want left over. That total is your target take-home.

Two mistakes to avoid here. Do not use your old salary as the target: an employer was also paying employer-side payroll taxes, some or all of your health cover, your equipment, and your paid time off, and none of that came out of the salary number you remember. And do not set the target at survival level, because a rate built on survival has no room in it for a slow quarter, and slow quarters are not optional.

Step 2: gross up for tax

This is the step people skip, and it is the single biggest reason a good year leaves nothing behind.

In the United States, self-employment tax alone is 15.3% — 12.4% Social Security plus 2.9% Medicare — and it is charged on 92.35% of net self-employment earnings, which works out to an effective 14.13% of your net profit. That is before any federal income tax, and before state income tax if your state has one. (Figures per IRS Topic no. 554, current for tax year 2026. The Social Security portion stops at the wage base, $184,500 for 2026; the Medicare portion never stops.)

There is no single correct percentage to use, because income tax depends on your bracket, your deductions, your filing status, your state, and — for many freelancers — the Qualified Business Income deduction. What you can do is start with a placeholder, then refine it once you have a real year of numbers.

A workable placeholder for a US sole proprietor at a middling income is 25–30% of net profit set aside for federal income tax plus self-employment tax combined, higher if your state taxes income. That is a planning figure, not a filing figure. The mechanics of turning it into an accurate number — and paying it on time — are in freelance quarterly taxes: how much to set aside.

To gross up, divide rather than multiply:

pre-tax profit needed = take-home ÷ (1 − tax rate)

At a 27% assumed rate, a $75,000 take-home needs $75,000 ÷ 0.73 = $102,740 of profit. Note that multiplying instead — $75,000 × 1.27 = $95,250 — undershoots by more than seven thousand dollars. This is a very common and very expensive arithmetic slip.

Step 3: real overhead

Overhead is everything the business costs that a job does not. Count it annually:

For a solo service business with no staff and no office, this commonly lands somewhere between $3,000 and $12,000 a year. Use your own figures — the point of the exercise is that it stops being invisible. Call it $6,200 for the worked example.

Step 4: billable hours, honestly

Here is where most rate calculations quietly fail. There are 2,080 working hours in a nominal year, and you will not bill anything close to that.

Start by removing time off. Four weeks of holiday, plus public holidays and a realistic allowance for sick days, leaves roughly 46 working weeks. At 40 hours a week, that is 1,840 hours available.

Then apply utilization — the fraction of available hours that a client actually pays for. The rest goes on: finding work, writing proposals, invoicing and chasing invoices, admin and bookkeeping, your own tooling, calls that go nowhere, and the gap between one project ending and the next starting.

Sustained utilization above 70% is rare for a solo freelancer who is also doing their own sales. Sixty percent is a good year. Fifty percent is normal in the first two years, and normal again any time you change what you sell.

At 60% of 1,840 hours, you have 1,104 billable hours.

The worked example

Putting it together:

A day rate follows from the same figure. If a billable day is seven real hours of focused work — and it is, once you account for the meeting and the context switching — the floor day rate is $700. Most people quote eight hours and land around $800, which is fine, but know which one you did.

What utilization actually costs

Hold the revenue requirement constant and change only the utilization assumption:

The spread between the optimistic and the realistic assumption is about $44 an hour — larger than most people’s entire idea of the range they could charge in. If you set your rate assuming 80% utilization and then live at 55%, you do not earn slightly less than planned; you earn roughly two-thirds of it. This one row of arithmetic explains most of the “I’m busy all the time and still broke” posts on the internet.

The floor is not the price

Everything above produces the number below which the work costs you money. What you charge is a separate decision, and the gap between the two is where the business gets interesting.

• Price the outcome where you can. A week of work that saves a client $60,000 a year is not worth $3,500 because a week costs $3,500. Fixed-price project quotes let you keep the upside from getting faster; hourly billing hands every efficiency gain straight to the client.
• Use multipliers deliberately. Rush work, unusually vague scope, and work that has to happen in the client’s tools rather than yours all cost you more than the hours suggest. A 1.25× rush multiplier and a 1.15× complexity multiplier are ordinary, and stating them up front is easier than resenting the job later.
• Quote a number, not a range. A range is read as its lower bound with the upper bound treated as a warning.
• Watch your acceptance rate. If nobody ever pushes back on price, the price is too low. Losing roughly one in four or five proposals on price is a sign you are near the top of your market, not a sign that something is wrong.
• Recalculate annually, and after anything changes. New health insurance, a move, a child, a laptop, a new specialism — all of them move the floor.

One last thing worth saying plainly. If the number that comes out of this calculation is higher than what you believe anyone will pay you, that is information, not failure. It means one of four things: your overhead is too high, your utilization assumption is fantasy, your target income needs a phased plan rather than a single leap, or you are selling something that has to change. All four are fixable. Guessing at a rate and hoping is not, because it never produces the diagnosis.