How Much to Charge Per Hour as a New Freelancer (Three Worked Examples)
General information, not tax or financial advice. Tax rates here are estimates; see the tax guide and verify figures with the IRS or a professional.
New freelancers usually set a rate by dividing an old salary by 2,080 hours, or by copying someone else. Both usually undercharge. A better start is to work backwards from what you need.
The formula
Rate = (take-home ÷ (1 − tax rate) + business expenses) ÷ billable hours
Taxes come out of profit, so take-home is grossed up first; expenses are added after. Billable hours are far fewer than working hours. Try it in the hourly rate calculator.
Why gross up for tax? As a freelancer you owe self-employment tax of 15.3 percent on 92.35 percent of net profit, plus income tax; see the IRS and our SE tax explainer.
Billable hours are the part people get wrong
Sales, admin, learning and invoicing are unpaid. Assume 48 working weeks at 40 hours, then apply a billable share. New freelancers often bill only about half of their working hours while they are still finding clients; 50 to 60 percent is a reasonable planning assumption (this is our assumption, not a measured figure).
Three worked examples
| A: part-time income | B: replacing a modest salary | C: full-time target | |
|---|---|---|---|
| Take-home goal | $45,000 | $60,000 | $75,000 |
| Business expenses | $3,000 | $4,000 | $6,000 |
| Estimated tax rate | 20% | 22% | 25% |
| Billable share | 50% | 55% | 60% |
| Profit needed | $56,250 | $76,923 | $100,000 |
| Revenue needed | $59,250 | $80,923 | $106,000 |
| Billable hours | 960 | 1,056 | 1,152 |
| Minimum rate | $62/hr | $77/hr | $92/hr |
(Calculation for B: 60,000 ÷ 0.78 = 76,923; + 4,000 = 80,923; ÷ (48 × 40 × 0.55 = 1,056) = $76.63.)
Compare with the salary shortcut for B: $60,000 ÷ 2,080 = $29 per hour. The difference is the cost of tax, expenses, unpaid time and time off.
If that number seems too high
- Raise your billable share by building retainers; see retainer pricing.
- Cut expenses you do not need.
- Lower the income goal for now and plan to raise it.
- Do not simply charge less than the minimum without knowing you are choosing to earn less.
Charge more as you go
Treat the minimum as a floor. When you are booked at 75 percent or more, or clients accept quotes without negotiating, raise your rate for new work. Review it every six months using your real billable hours.
Hourly vs project
Use hourly as a planning tool and quote projects at a price that implies at least your rate. The Freelance Rate & Quote Calculator in our shop turns this into a spreadsheet with best, likely and worst-case quotes. It is an optional paid product from us; the free calculator above covers the basics.
Once you have a rate, make sure your invoices and terms support it; see the invoice checklist.