How Much to Charge as a Freelancer: The Real Rate Formula

The mistake almost every new freelancer makes

You earned $75,000 at your job, so you divide by 2,080 working hours and get $36/hour. You quote $40 to be safe. Six months later you're working more than ever and somehow earning less.

The error: an employee's hour and a freelancer's hour are different products. Your employer paid for your slow Tuesdays, your training, your admin, half your payroll taxes, your equipment, your insurance, and your vacation. As a freelancer, your billable hours must pay for all of it.

The real formula

Required hourly rate = (Target income + Business expenses) / (1 - tax rate) / Real billable hours

Work each piece honestly:

1. Target income - what you want to take home, e.g. $75,000
2. Business expenses - software, hardware, insurance, accounting, marketing. $5,000-$12,000/year is typical for solo professionals
3. Tax rate - self-employed people pay both halves of Social Security and Medicare (15.3% in the US) on top of income tax. 25-35% combined is a common planning number - see our freelance tax guide
4. Real billable hours - the number that hurts. 40 hours a week are not billable. After sales, admin, email, and empty weeks, most full-time freelancers bill 20-30 hours a week, 44-48 weeks a year

A worked example

Target $75,000 take-home, $8,000 expenses, 28% taxes, 25 billable hours across 46 weeks (1,150 hours):

• Gross needed: (75,000 + 8,000) / 0.72 = $115,278
• Rate: 115,278 / 1,150 = $100/hour

That's the honest math behind why experienced freelancers charge 2.5-3x the "equivalent" employee hourly rate - and why $40 was a slow-motion pay cut. Run your own numbers in our freelance rate calculator, or compare against employment with the paycheck calculator.

Should you charge hourly or per project?

Use your hourly rate as a floor, not a price list. For projects: estimate hours honestly, multiply by your rate, then add 15-25% for revisions and risk. Experienced freelancers usually earn more per hour on fixed prices - but only when the underlying rate is right. Quoting a project? Send it as a professional document with our estimate generator.

How to raise your rate (without losing clients)

• Quote the new rate to new clients first - they have no anchor
• Give existing clients 30-60 days' notice, framed around scope and demand
• Raise in meaningful steps (15-25%), not timid ones
• Expect to lose the bottom 10% of clients - that's the system working

The uncomfortable truth

If you've never had a client push back on price, you're undercharging. The right rate produces occasional "no"s - and clients who say yes at a number that lets you do your best work. When they say yes, invoice like a business: professional invoices, clear terms, automatic reminders with BillingOtter.