Start from the yearly income you need, add your business costs and time off, and divide by the hours you can actually bill. Wanting the equivalent of a $60,000 salary with $6,000 of costs and 1,000 billable hours a year means charging at least $81 an hour. Then price projects by estimating hours × that rate.
Step 1: Your minimum hourly rate
- Target income: say $60,000 a year.
- Add about 25% for what an employer would normally cover, like paid time off, health insurance and retirement contributions: $15,000. Your own figure may be higher or lower.
- Add business costs: software, equipment, internet, training, marketing: $6,000.
- Total needed: $81,000.
- Divide by billable hours. Not every working hour is billable: admin, emails, finding clients and unpaid revisions take time. 1,000 billable hours a year is about 20 a week.
| Billable hours per year | Minimum hourly rate |
|---|---|
| 800 (about 16 a week) | $101 |
| 1,000 (about 20 a week) | $81 |
| 1,200 (about 24 a week) | $68 |
This is before taxes, which depend on your situation. Many freelancers set aside a portion of every payment; the IRS has guidance for self-employed people.
Step 2: Hourly or project pricing?
| Hourly | Project (fixed price) | |
|---|---|---|
| Best when | The scope is unclear or keeps changing | The scope is clear and you’ve done similar work |
| Risk for you | Clients may question your hours | The project takes longer than planned |
| Risk for the client | Unknown total cost | Little, the price is fixed |
Step 3: Turn your rate into a project price
Estimate the hours, multiply by your rate and add a buffer of 15% to 25% for revisions and surprises. A project you expect to take 20 hours at $85 is $1,700. If it really takes 26 hours, your effective rate falls to about $65, so write down what’s included and how extra revisions are charged.
How to raise your rate
- Raise it for new clients first, then give existing clients notice.
- Package your work, for example a monthly bundle, so clients compare value rather than hours.
- Specialize. A narrow niche usually supports higher rates than general work.
- Check your real rate every few months with the formula in our side hustle guide.
More questions
How much should I charge as a freelancer?
At least your minimum rate: the income and costs you need divided by the hours you can bill. Then check what similar freelancers charge in your field and adjust.
How do I calculate my freelance rate based on a salary?
Add roughly 25% to the salary for time off and benefits, add your business costs, and divide by your billable hours. $60,000 becomes about $81 an hour at 1,000 billable hours.
Why are freelance rates higher than employee hourly pay?
Freelancers cover their own time off, benefits and business costs, and can’t bill every hour they work.
Should I charge per hour or per project?
Per hour for unclear or changing work; per project for clearly defined work you can estimate well.
The bottom line
Work out your minimum rate from what you need, not from what others charge. Use hourly pricing when the scope is uncertain, project pricing when it’s clear, and track your hours to make sure fixed prices still pay your rate.
Sources
- IRS: Self-Employed Individuals Tax Center.
- U.S. Small Business Administration: calculate your startup costs.
This article is for educational purposes only and is not financial, business or tax advice. The 25% figure is an illustrative assumption.