To figure out how much to charge as a freelancer, don’t guess; work backward from your target income: add up the annual take-home you want, plus business expenses, plus taxes, then divide by your realistic billable hours.
The critical mistake most new freelancers make is dividing by 2,080 (a full-time year of hours) when they’ll actually bill far fewer, because a big chunk of freelance time goes to admin, marketing, and finding clients. Get the billable-hours math right, and your rate suddenly makes sense.
Freelancing is booming; over 64 million Americans now freelance, so you’re entering a big, competitive market. Pricing yourself correctly from the start is one of the biggest factors in whether your business is sustainable.
Key Takeaways
- Work backward from income: target take-home + expenses + taxes, divided by billable hours.
- You bill fewer hours than you work: freelancers typically bill only 50%–70% of their time.
- Set aside 25%–40% for taxes, since no employer is withholding them.
- Research market rates for your field and experience level.
- Raise rates over time as your skills and demand grow.
The Freelance Rate Formula
Here’s the calculation that actually works. Start with the annual take-home income you want. Add your yearly business expenses (software, equipment, insurance) and the taxes you’ll owe, then divide by the number of hours you can realistically bill in a year. According to Upwork, freelancers usually bill only 50% to 70% of their working hours, with the rest going to non-billable work. That single adjustment is why so many underprice themselves.
| Step | Example |
|---|---|
| Target take-home income | $70,000 |
| + Business expenses | $8,000 |
| + Estimated taxes (~30%) | $33,000 |
| = Total to earn | $111,000 |
| ÷ Billable hours (~1,000/yr) | ≈ $111/hour |
Figures are illustrative; adjust to your own numbers and market.
“If you think it’s expensive to hire a professional, wait until you hire an amateur.”
— Red Adair
Don’t Forget Taxes and Non-Billable Time
Two things sink new freelancers: taxes and time. As a freelancer, you pay self-employment tax and income tax with nothing withheld, so setting aside roughly 25% to 40% of your income is essential. And because only part of your week is billable, spent on client work rather than proposals, emails, and marketing, your effective rate has to cover all those unpaid hours. Price as if you’re running a business, because you are, not as if you’re an employee with a salary.
A Realistic Rate-Setting Example
Consider an illustrative case. Maya wants to take home $70,000 as a freelance writer. She adds $8,000 in expenses and estimates about $33,000 in taxes, so she needs to earn roughly $111,000. She can realistically bill about 1,000 hours a year (the rest goes to pitching and admin), which points to an hourly rate of about $111. She checks market rates for her niche to sanity-check it, then rounds and adjusts. Had she naively divided $70,000 by 2,080 hours, she’d have charged about $34 and quietly gone broke.
When and How to Raise Your Rates
Your first rate shouldn’t be your forever rate. Signs it’s time to raise it include being fully booked, turning down work, gaining new skills or credentials, or simply not having raised it in over a year. When you do, a 10% to 20% bump is common, and it’s easiest to apply to new clients first while giving existing clients notice. You’ll rarely lose your best clients over a reasonable increase, and the ones who leave over a small raise are often the least profitable anyway.
Raising rates is also one of the fastest ways to earn more without working more hours, since you’re increasing the value of the billable time you already have.
Frequently Asked Questions
How do I calculate my freelance hourly rate?
Add your target take-home income, business expenses, and estimated taxes, then divide by your realistic billable hours for the year. Remember that freelancers typically bill only 50% to 70% of their working hours.
How much should freelancers set aside for taxes?
A common guideline is 25% to 40% of your income, since you’ll owe self-employment tax and income tax with no withholding. Setting money aside as you go prevents a painful surprise at tax time.
Should I charge hourly or per project?
Both work. Hourly is simple and protects you on open-ended work, while project-based pricing rewards efficiency and gives clients cost certainty. Many experienced freelancers move toward project or value-based pricing as they gain confidence.
What if a client says my rate is too high?
Some pushback is normal and doesn’t mean your rate is wrong. You can hold firm, offer a reduced scope to fit their budget, or simply let that client go. Competing on price alone is a race to the bottom; it’s usually better to communicate your value than to slash your rate.
The Bottom Line
Set your freelance rate by working backward from your income goal, adding expenses and taxes, and dividing by realistic billable hours, not a full-time schedule. Because you bill only for part of your time and cover your own taxes, your rate has to be higher than an equivalent salary would suggest. Price like the business owner you are, research your market, and raise your rates as your value grows.
Image Credit: Vlada Karpovich; Pexels
Deanna Ritchie
Editor-in-Chief at Calendar. Former Editor-in-Chief, ReadWrite, Former Editor-in-Chief and writer at Startup Grind. Freelance editor at Entrepreneur.com. Deanna loves to help build startups, and guide them to discover their business value and the "how to" of their online content and social media marketing.