How To Calculate Your Freelance Hourly Rate And Earn What You Need And Deserve

Pricing your freelance services isn’t just about the money you want to make, it’s about the quality of life you want for yourself and/or your team.

How To Calculate The Correct Freelance Hourly Rate

It doesn’t matter if you’re using hourly pricing, flat-rate pricing, or value-based pricing, or if you’re selling services a-la-carte, in packages, or through monthly retainers, day rates, or weekly rates, to accurately estimate the cost for a set scope of work and price your freelance services, you first must know your minimum acceptable freelance hourly rate. Only then can you properly determine what to charge freelance clients.

But where do you start?

If you’re here, you’re either:

  1. A new freelancer who is figuring out how to price your services for the first time and set yourself up for long-term success.
  2. An experienced freelancer who is reevaluating your pricing because you’re either working hard but not earning the revenue/income desired, repositioning yourself in the market with new services and packages, or tired of guessing when it comes to creates estimates and proposals.

And I know you have questions like…

  • How do I figure out what to charge for my freelance services?
  • How do I calculate an accurate, profitable freelance hourly rate?
  • And what the heck even makes a freelance rate profitable anyway?

Understanding what your time is worth and establishing your hourly rate is often a stressful task for both new and seasoned freelancers alike because there is no universal right answer. Unfortunately, this leads to freelancers guessing, copying others, or using the lazy approach to calculating their hourly rate, which is also the most common approach.

The most often used hourly rate calculation is to divide the salary you want by the number of hours worked each year:

  • 40 hours/week × 52 weeks/year = 2,080 hours
  • $100,000 desired salary ÷ 2,080 hours = roughly $50 per hour

The math makes sense, but the thinking behind it is all wrong.

If your goal is to earn $100,000 per year and your hourly rate is only $50/hour, you’ll soon find yourself in heaps of trouble. Even if you marked your rate up an extra 20% to roughly $60/hour thinking it would cover your business expenses, you’d still have financial problems.

This miscalculation is why we see so many “online experts” claiming to have made six figures in revenue, yet only actually paying themselves a salary of $65,000/year (which is even less after taxes). They’re secretly struggling to make ends meet because:

  1. Earning $100,000 in freelance business revenue is not the same as earning a $100,000 salary.
  2. Earning $100,000 in total revenue (gross) is far different than what’s left after business paying expenses and taxes (net).

Pricing Your Freelance Services

Pricing your services isn’t just about the money you want to make, it’s about the quality of life you want for yourself and/or your team.

When pricing yourself as a freelancer, you need to think about paying yourself, paying your expenses (which include business taxes), and returning a profit back to your business for future reinvestment and growth.

Before you can even begin figuring out YOUR specific freelance hourly rate, you need to understand your freelance business expenses, which include things like:

  • Rent, telephone, internet, and utilities
  • Office equipment, office supplies, and furniture
  • Website hosting, software, tool, and service subscriptions
  • Salary, workers comp, insurance/benefits
  • Bonuses and shareholder distributions
  • Taxes
  • Advertising and marketing costs
  • Business insurance and business entity/license fees
  • Legal, professional service, and accounting fees
  • Subcontractor fees
  • Professional memberships
  • Skill improvement / business education expenses
  • Business travel expenses, vehicle mileage
  • Out-of-pocket expenses you want your business to cover

NOTE: Your expenses will differ based on the type of freelance business you have and not all of the expenses listed above will apply. For example, If you operate as a sole proprietor the way you calculate business income vs. personal income is very different than how it is calculated for a freelancer who operates as an LLC.

Next, get clear about how much you will work.

As a freelancer, you’re in charge of your own schedule. Consider the number of weeks you’ll work each year, the number of hours you want to work each week, and of those, how many hours will actually be spent doing billable work.

Remember, not every hour “at work” will be a billable hour. You’ll need time for tasks like the administrative work needed to run your freelance business, market your services, hold sales calls, invoice clients, and more. You’ll also need to consider the fact that you’re not a robot and you won’t be working 5 days a week every week all 52 weeks of the year.

So think about:

  • How many hours do you want to work each week?
  • How many will be spent doing administrative work?
  • Will you take holidays off? What about vacation days?
  • Will you take the day off when you’re sick?
  • Will you ever take time off for business events, conferences, and workshops?

And, finally, think about your desired freelance profit margin.

Salary is not profit, it’s a business expense.

Profit is what is left over after your salary and all business expenses have been paid — it is the money available to you to reinvest in up-leveling and learning new skills, improving your systems and processes, marketing your services, generating more leads, landing new clients, and growing your freelance business.

lightbulb

Get step-by-step instructions, workbooks, worksheets, and examples in my Packaging + Pricing Mini Course to not only figure out your freelance rate, but learn how to create a rate card that makes the proposal process easy, package your services for value and profit, set and track your financial goals, and more!

How to Calculate a Minimum Hourly Rate

Let’s take a look at the real math and determine a freelance hourly rate that covers your salary, expenses, and profit, and supports the quality of life you want…

This example will use a desired personal salary of $100,000, full-time 40-hour/week employment, and having the business cover the $12,000 cost of buying health insurance.

STEP 1: Calculate Your Freelance Expenses

Add up all of your business expenses:

  • $100,000 salary + $20,000 expenses + $12,000 health insurance = $132,000 total annual business expenses

If you’re new to freelancing, business ownership, or agency ownership and you don’t know what some of the expenses are going to be yet, reach out to industry contacts and ask for ballpark figures for planning purposes.

STEP 2: Calculate Total Cost Of Doing Business

Add your desired freelance profit margin to your business expenses. A common profit margin for client services is 10-20%. For this example, we’ll play it safe with a 10% profit margin.

  • $132,000 total expenses × 1.10 = $145,200 total cost of doing business

STEP 3: Calculate Your Number Of Billable Hours

If you work 8 hours each day, take a 1-hour lunch, and spend 1.5 hours per day on admin work, phone calls, email, and meetings, it leaves you with only 5.5 hours to spend on billable work.

  • 8 hour workday – 2.5 hours not doing billable work = 5.5 billable hours per day
  • 5.5 billable hours per day x 5 days per week = 27.5 billable hours per week

You’re also, not going to work all 52 weeks per year. You’ll take days off for holidays, vacation days, sick days, and business travel.

Typical USA holidays include New Year’s Day, Presidents Day, Martin Luther King Day, Memorial Day, Juneteenth, Independence Day, Labor Day, Veterans Day, Thanksgiving Day, Friday after Thanksgiving, and Christmas Day.

  • Holidays: 11
  • Vacation: 15
  • Sick Days: 7
  • Business Travel Days: 4

Let’s do the math to find out how many hours you will be out of the office:

  • 11 holidays + 15 vacation days + 7 sick days + 4 travel days = 37 days off
  • 37 days off x 5.5 billable hours/day = 203.5 billable hours not worked

Now, let’s do the math to find your total number of billable hours per year:

  • 27.5 billable hours/week × 52 weeks/year = 1,430 hours of billable work/year
  • 1,430 hours — 203.5 billable hours not worked = 1,226.5 actual billable hours/year

NOTE: If you are working part-time, you may use a 4-hour workday or a 3-day work week as your base. Or to keep it simple, a 20-hour workweek is 50% of a 40-hour workweek, which means in the above calculation, you can simply swap 52 weeks per year with 26 weeks per year (50% of the weeks worked).

STEP 4: Calculate Your Freelance Hourly Rate

Instead of billing for 2,080 hours per year, you only bill for 1,226.5 hours each year. Now that you know your total cost of doing business is $145,200 and the total number of billable hours you will work per year is 1,226.5, you can calculate your minimum hourly rate:

  • $145,200 total cost ÷ 1,226.5 billable hours = $118/hour minimum hourly rate

As you can see in this example, the minimum hourly rate needed to achieve a freelance salary of $100,000 is more than double the original calculation of $50 per hour!

What’s even more important to understand is that this rate is the lowest rate you can charge and still run a profitable, successful freelance business. It’s not necessarily the rate you’ll aspire to or use when value-pricing your service packages.

lightbulb

Get step-by-step instructions, workbooks, worksheets, and examples in my Packaging + Pricing Mini Course to not only figure out your freelance rate, but learn how to create a rate card that makes the proposal process easy, package your services for value and profit, set and track your financial goals, and more!

Other Items To Consider Pricing Freelance Services

When figuring out how to price yourself as a freelancer and set an accurate hourly rate, it’s important to not operate in a vacuum or isolate yourself from what is happening in your industry both locally and globally.

Do some investigative work to uncover competitor rates and what other freelancers are charging similar clients. This will help ensure your hourly rate is based on reality and in alignment with your market and what potential clients are willing to pay.

You can find this information through:

  • Industry trade organizations
  • Asking others in your industry
  • “Shopping” your competitors
  • Asking potential clients or customers or people you know who have recently completed a project like the ones you want to offer
  • Researching average salary information

The Freelance Pricing Bottom Line

No one starting or running a freelance business is doing so to work for free, be underpaid for the services and value they deliver, or exist as a slave to their business.

You deserve to earn a fair fee for work well done, to charge your full freelance rate and get it, and to live the life you dream of. The trick is figuring out the right freelance hourly rate and pricing your services and packages appropriately so you can pay your expenses, pay yourself, and put profit back into your business.