How to Set Your Freelance Hourly Rate (With the Actual Math)

Quick answer

Your freelance hourly rate is your target take-home plus taxes plus overhead, divided by the hours you actually bill — not the hours you work. The compact formula:

rate = (target take-home + taxes + overhead) / billable hours per year

The number that catches most people out is the divisor. Of a roughly 2,000-hour working year, most independent workers actually invoice 50 to 60 percent of their time — call it 1,000 to 1,300 hours. The rest goes to proposals, calls, admin, invoicing, marketing, and revisions. Set your rate against the lower number and you stay solvent. Set it against 2,000 and your effective rate quietly collapses by December.

The rest of this guide walks through the four inputs with a worked example, lists the mistakes that show up most often, and ends with how to keep the math honest week to week.

Step-by-step

1. Pick a take-home target, not a salary

Start from what you need to live on plus what you want to save — not from a salary you used to earn. Take-home means money in your pocket after federal, state, and self-employment taxes. A freelancer who wants the same lifestyle as a 75,000 dollar salaried role does not have a 75,000 dollar problem. The gross-up changes everything.

Worked input: target take-home of 75,000 dollars per year.

2. Add taxes

In the United States, self-employed workers owe self-employment tax on top of regular income tax. The IRS self-employment tax rate is 15.3 percent — 12.4 percent for Social Security and 2.9 percent for Medicare — applied to 92.35 percent of net earnings. Federal and state income taxes stack on top.

For planning, gross up by roughly 35 percent to cover the combined effective rate. If you are outside the US, swap in your country's self-employed contributions and income-tax bands. The principle is the same; only the numbers change.

Worked input: 75,000 / (1 − 0.35) ≈ 115,000 dollars pre-tax target.

3. Add overhead

Overhead is every recurring cost of running the business itself: software subscriptions, hardware amortization, health insurance, an accountant, professional services, internet, a coworking desk, retirement contributions, and the unglamorous category called "everything else." Use a real number from your last two months of statements, not a guess.

Worked input: 12,000 dollars in overhead → about 127,000 dollars total revenue target.

4. Divide by realistic billable hours

A standard working year is around 2,000 hours (40 hours × 50 weeks). Your billable share is the part you actually invoice — typically 50 to 60 percent. Use 1,100 hours as a working estimate until you have your own data.

127,000 / 1,100 ≈ 115 dollars an hour.

Treat this number as your cost-based floor, not your ceiling. Stripe's pricing guide draws the distinction cleanly: cost-based pricing is the floor you should not sell below; value-based pricing is the ceiling tied to the outcome the client gets. When a project produces a clear, high-leverage outcome for the client, the supportable rate is higher than the floor.

Common problems and fixes

"The number scares my clients"

Often the rate is not actually wrong — the comparison is. An hourly figure looks larger than a salary even when the annual money is the same. The fix is structural, not numerical: once scope is defined, quote in projects or weekly blocks. A short HBR guide from Dorie Clark, Alisa Cohn, and Marshall Goldsmith lays out when each model fits — hourly for genuinely unknown scope, fixed-project once scope is defined, retainer for ongoing capacity.

"I keep working unpaid hours"

This is the gap between your quoted rate and your effective rate. Pick a minimum billing increment — 6, 10, or 15 minutes — and put it in the engagement letter so small client touches do not vanish from the invoice. Then track every hour for one month, billable and admin, and divide your take-home by the total. If the effective number is well below your quoted rate, the leak is in your billable share, not your price.

"Quarterly taxes blindsided me"

Most new freelancers under-withhold because the IRS does not pull taxes for them. If you expect to owe 1,000 dollars or more for the year, you generally owe quarterly estimated payments via Form 1040-ES. The usual deadlines are April 15, June 15, September 15, and January 15 of the following year. Put the four dates in your calendar and treat the payments like rent: non-negotiable line items in your overhead.

"Clients push back when I raise rates"

The pushback is usually about notice, not the number. Apply new rates to new clients immediately. Give existing clients three to six months of written notice with the new rate and the date it starts — long enough that the increase feels reasonable, short enough that you stop subsidizing them. Review your rate at least once a year, and after any meaningful skill, tool, or speed improvement.

Doing this with Pomlo

Setting a rate is only half the job. Keeping it honest takes reliable time data — both the billable hours that go on the invoice and the non-billable hours that quietly eat your margin.

Pomlo is a beautifully simple time tracker for iOS, Android, and the web, built for freelancers, indie hackers, and small teams. Three features matter most for the math in this article:

• Time tracking — one-tap start/stop, so logging an hour does not become its own admin task. The cleaner your data, the more honest your effective-rate calculation.
• Projects and clients — organize hours by who you are billing. When the invoice goes out at the end of the month, the line items write themselves.
• Reports — see where your week actually went, billable versus non-billable. The first time you look at that split is usually the moment you decide to either raise your rate or cut admin.

For more on freelance ops, see other Pomlo articles on billable hours, invoicing, and project pricing.

Try Pomlo on the App Store or Google Play. If you want a tour first, see our getting-started notes in support.

Frequently Asked Questions

How many billable hours can a freelancer realistically work in a year?

Most independent workers bill between 1,000 and 1,300 hours a year out of a roughly 2,000-hour working calendar. The rest goes to admin, proposals, calls, invoicing, marketing, and revisions. When you build your rate, plan against the lower number — not the full 2,000 — or your effective rate will quietly collapse.

Should I charge hourly or by the project?

Use hourly when the scope is genuinely unknown — discovery work, ongoing advisory, or anything where you cannot estimate hours within a clear range. Use project pricing once the scope is defined, because faster work then rewards you instead of cutting your invoice. Many freelancers use both: hourly to scope, then a fixed quote for the build.

Do I really need to pay self-employment tax?

Yes, if your net self-employment earnings are 400 dollars or more in a year. The IRS rate is 15.3 percent — 12.4 percent for Social Security and 2.9 percent for Medicare — applied to 92.35 percent of your net earnings, and you usually owe it in quarterly estimated payments rather than once at filing time.

How often should I raise my rates?

Review your rate at least once a year and after any meaningful skill, tool, or speed improvement. Apply the new rate to new clients on day one. Give existing clients written notice three to six months ahead — long enough that the increase feels reasonable, short enough that you do not delay your own pay.

How do I know my current rate is wrong?

Track every working hour for one month — billable and non-billable — then divide your monthly take-home by the total. If that effective rate is below what you need to cover income, taxes, overhead, and the time you wanted off, your quoted rate is too low or your billable share is too thin. Fix one, not both, at a time.