How to Set Your Hourly Rate as a Freelancer

The Problem With How Most Freelancers Set Their Rate

Most freelancers set their hourly rate by doing one of three things: guessing a number that feels reasonable, matching what they think competitors charge, or dividing their previous salary by 2,080 (the number of working hours in a year). All three approaches produce rates that are almost certainly too low.

The right way to set a freelance rate starts with your costs, accounts for the realities of freelance income (you don't bill every hour you work), and arrives at a number that actually sustains your business and your life.

Step 1: Calculate Your Annual Target Income

Start with what you need to earn — not what you want, but what you need. Add up your annual expenses:

• Personal living costs (rent, food, utilities, transport)
• Business costs (software, equipment, professional development, insurance)
• Taxes (research your applicable self-employment tax rate — in many countries this is 25–35% of income)
• Savings and retirement contributions
• Healthcare costs (if not covered by a partner or public system)

This is your annual target income — the minimum you need to earn for your freelance business to be viable. Add a buffer of 15–20% for unexpected costs, slow months, and income volatility.

Step 2: Calculate Your Real Billable Hours

The most important number that most freelancers get wrong. You do not work 40 billable hours a week. Nobody does. Here's a more realistic breakdown for a full-time freelancer:

• Total working hours per week: 40
• Less: admin, accounting, invoicing: 3 hours
• Less: business development, proposals, calls: 4 hours
• Less: marketing and visibility (content, networking): 2 hours
• Less: professional development: 1 hour
• Real billable hours per week: approximately 30

Then account for time off: 4 weeks vacation, plus 10 public holidays, plus a realistic buffer for sick days and slow periods. That's roughly 6 weeks, leaving you 46 working weeks.

46 weeks × 30 billable hours = 1,380 billable hours per year.

Not 2,080. 1,380. That gap is why undercutting yourself feels sustainable in the short term and catastrophic in the long term.

Step 3: Calculate Your Minimum Rate

Divide your annual target income (including buffer) by your real billable hours.

Example:

• Annual living and business costs: $60,000
• Tax provision (30%): $18,000
• Savings and buffer (15%): $9,000
• Total target income: $87,000
• Divided by 1,380 billable hours: $63/hour minimum rate

This is your floor — not your rate. Your rate should be above this number. The floor tells you what you cannot charge less than without your business eventually failing.

Step 4: Adjust for Market and Value

Your minimum rate is about your costs. Your market rate is about what clients will pay. Research what other freelancers in your field, with your level of experience, charge in your market. This gives you a range.

Your actual rate should sit in this range but be anchored to your floor. If the market rate is $80–120/hour and your floor is $63, you have room. If the market rate is $50–70/hour and your floor is $63, you have a problem that either requires reducing costs or repositioning toward higher-value work.

Also consider the value of the outcome you produce, not just the time it takes. A copywriter who increases a client's email revenue by $50,000 should not charge $50/hour because the work took 20 hours. The value is orders of magnitude higher. Expertise, specialisation, and demonstrated results all justify rates significantly above the market midpoint.

Step 5: Test and Adjust

If every client you pitch to accepts your rate without hesitation, you're priced too low. Some resistance is healthy — it tells you you're operating at a rate where your work is perceived as genuinely valuable.

Raise your rate by 10–20% with new clients. Track whether close rates change meaningfully. If they don't, raise again. Most freelancers find they can charge significantly more than their initial rate with no material change in close rates — they were simply leaving money on the table because they were afraid to ask for it.

One Practical Note on Time Tracking

Once you've set a rate, tracking your time accurately becomes even more important. Your effective hourly rate — what you actually earn per hour of work — is not just about what you invoice. It includes all the time you work on each project that doesn't get billed. Accurate time tracking gives you the data to know whether a fixed-fee project was actually profitable, and to price future similar projects accordingly.

The Bottom Line

Setting your freelance rate is a financial calculation, not a guess. Start with your real costs, calculate your real billable hours, find your floor, research your market, and price above the floor. Then raise it regularly. The freelancers who earn the most are rarely the most talented — they're the ones who understand their value and charge accordingly.