1. Start From the Income You Need
Pick the take-home pay you want for a year: what lands in your account after taxes and business costs. Include what an employer would have paid for you, such as health insurance and retirement savings.
2. Add Business Costs and Taxes
Add a year of business costs: software, equipment, insurance, a workspace, accounting, professional fees. Then add taxes. In the US, self-employed people pay self-employment tax (15.3% on most of their net earnings, covering Social Security and Medicare) on top of income tax, so many set aside 25% to 35% of what they earn.
3. Count the Hours You Can Bill
Take the weeks you'll work after vacation, holidays and sick days, then the share of your working hours that's billable. Admin, sales and invoicing take time too, so most freelancers bill 50% to 75% of the hours they work.
4. Divide
| Per year | |
|---|---|
| Take-home pay you want | $90,000 |
| Business costs | $8,000 |
| Before taxes, at 30% set aside: ($90,000 + $8,000) ÷ 0.70 | $140,000 |
| Working hours: 48 weeks × 40 hours | 1,920 hrs |
| Billable hours at 60% | 1,152 hrs |
| Rate: $140,000 ÷ 1,152 hours | $121.53 per hour |
Round to a number you can say comfortably, here $120 or $125 per hour. The Hourly Rate Calculator does this with your own numbers, and the Day Rate Calculator turns it into a day rate.
5. Check It Against the Market
Look at what people with your skills and experience charge where your clients are: ask peers, read rate surveys for your field, and look at public profiles. If your number is well below the market, raise it. If it's well above, sharpen what you offer or the kind of client you work for, or lower your costs.
Specialists usually charge more than generalists. Expertise in an industry, a tool or a type of problem is the most reliable way to raise a rate.
6. Raise It Over Time
- Quote new clients at your new rate first.
- Give existing clients notice, often 30 to 60 days, with the date it starts.
- Review your rate once a year, and whenever you're booked solid.