Most new freelancers set their rates by guessing, or by taking their old hourly wage and adding a little. That almost always leaves them underpaid, because a freelance rate has to cover things an employer used to pay for: taxes, health insurance, retirement, unpaid time off and business expenses. Here’s a simple, numbers-based way to work out how to set freelance rates that actually pay your bills.
Short answer: add up your target annual income, business expenses, health insurance, retirement savings and the extra self-employment tax you’ll pay. Divide that by your realistic billable hours (often 1,000–1,300 a year, not 2,080). That’s your minimum hourly rate. Then compare it with market rates and adjust for your experience and the value you deliver.
Key takeaways
- Your rate must cover income + expenses + benefits + extra self-employment tax.
- Plan on 1,000–1,300 billable hours a year; the rest goes to admin, sales and time off.
- Example: a $75,000 salary-equivalent target works out to about $90/hour of billable time.
- Use your minimum rate as a floor, then price projects on value and scope.
- Review rates at least once a year and raise them for new clients first.
How to set freelance rates in 7 steps
Step 1: Decide your target income
Start with what you’d want to earn as an employee in a comparable role, your “salary-equivalent.” Check salary data for your profession and location, then decide whether freelancing should pay the same or more for the flexibility and risk you take on.
Step 2: Add the costs an employer would cover
| Cost | What to include | Example (annual) |
|---|---|---|
| Business expenses | Software, equipment, insurance, coworking, accounting, marketing | $8,000 |
| Health insurance | Premiums for you (and family), minus any subsidy | $7,200 |
| Retirement savings | Replacing an employer match and more | $7,500 |
| Employer half of payroll taxes | ~7.65% of your salary-equivalent | $5,738 |
| Target salary-equivalent | What you want to earn | $75,000 |
| Total revenue needed | $103,438 |
Example figures for illustration. Health insurance costs vary widely; see our guide to health insurance for self-employed freelancers. For business insurance, see what freelancers pay for business insurance.
Step 3: Estimate your billable hours
You won’t bill 40 hours a week, 52 weeks a year. A realistic estimate:
- Working weeks: 52 minus vacation, holidays and sick days. Around 46 weeks is common.
- Billable hours per week: many freelancers bill 20–30 hours; the rest goes to email, sales, admin and learning.
- Example: 46 weeks × 25 billable hours = 1,150 billable hours.
Step 4: Calculate your minimum hourly rate
Divide the revenue you need by your billable hours:
$103,438 ÷ 1,150 hours ≈ $90 per hour
That’s your floor: the lowest rate that meets your goals. Compared with a $75,000 salary (about $36/hour over 2,080 hours), it shows why freelance rates need to be much higher than employee wages.
Your taxes come out of profit, so keep setting aside money for quarterly estimated taxes from every payment.
Step 5: Check the market
Research what others in your field charge:
- Professional association rate surveys and industry reports.
- Peers’ published rates and conversations in professional communities.
- Job boards and agency rates for similar work.
- What clients have told you about other quotes.
If your minimum rate is far above the market, look at reducing expenses, increasing billable hours, specializing in a higher-paying niche, or moving to project pricing.
Step 6: Choose a pricing model
| Model | How it works | Best for | Watch out for |
|---|---|---|---|
| Hourly | Bill tracked time | Unclear scope, ongoing support | Penalizes efficiency; clients watch hours |
| Day rate | Fixed price per day | On-site work, workshops | Define what a “day” includes |
| Project / fixed fee | One price for defined deliverables | Clear scope (websites, logos, articles) | Scope creep without a good contract |
| Retainer | Monthly fee for ongoing availability or work | Long-term clients | Define hours or deliverables included |
| Value-based | Price based on the outcome’s value to the client | Experienced freelancers with measurable impact | Requires understanding the client’s business |
For project pricing, estimate the hours, multiply by your rate and add a buffer (often 15–25%) for revisions and communication. Then put the scope in writing with a clear freelance contract.
Step 7: Raise your rates over time
- Review rates every year, at least for inflation.
- Charge new clients your new rate first, then move existing clients over with notice (30–60 days is common).
- Raise rates when you’re fully booked. Demand is your best pricing signal.
- Specialize. Niche expertise (for example, SaaS copywriting or e-commerce development) supports higher rates.
Common pricing mistakes
- Using your old hourly wage as your freelance rate.
- Assuming 40 billable hours a week.
- Forgetting taxes, health insurance and retirement.
- Discounting heavily to win first clients and getting stuck there.
- Not charging for revisions, rush work or scope changes.
Comparing a contract offer with a job offer? Our guide to 1099 vs. W-2 explains how much more a contractor rate needs to be.
Frequently asked questions
How do I calculate my freelance hourly rate?
Add your target income, business expenses, health insurance, retirement savings and the employer half of payroll taxes, then divide by your realistic billable hours per year. Compare the result with market rates and adjust.
How many billable hours do freelancers work?
Many freelancers bill 1,000–1,300 hours a year, or roughly 20–30 hours a week across 46 working weeks, because time also goes to admin, marketing and learning.
Should freelancers charge hourly or per project?
Hourly works for unclear or ongoing work. Project pricing rewards efficiency and is easier for clients to budget, as long as the scope is clearly defined in a contract.
How much higher should a freelance rate be than a salary?
Often around 2–3 times the equivalent hourly wage, because you cover taxes, benefits, expenses and unbillable time. The exact multiple depends on your costs and billable hours.
How often should I raise my freelance rates?
Review them at least once a year. Raise rates for new clients first and give existing clients notice before changing theirs.
Sources
Disclaimer: This article is for informational purposes only and is not tax, legal or financial advice. OwnWork HQ is not a CPA or tax advisor. Tax rules change and depend on your situation, so confirm details with the IRS or a qualified tax professional before you act.