The Billable Hours Trap
When you transition from a full-time job to freelancing, your initial instinct is to take your old salary, divide it by 2,080 (the hours in a 40-hour work year), and make that your hourly rate. This is a recipe for burnout.
When you are an employee, you get paid to sit in meetings, check your email, and take coffee breaks. As a freelancer, nobody pays you to balance your books, send out marketing emails, or pitch to new clients. If you try to bill 40 hours a week to clients, you will end up working 60 hours a week total.
A sustainable freelance pricing strategy assumes you will only do billable client work for about 20 to 25 hours a week. Your hourly rate must be high enough to subsidize the other 15 hours you spend managing your business.
How to Use the Calculator
Our generator reverse-engineers your perfect rate. Here is how to fill out the fields:
- Target Income. Enter what you want your personal, take-home pay to be before taxes. Do not include your business expenses here.
- Annual Expenses. Estimate the total cost of running your business for a year. Include software subscriptions, web hosting, advertising, health insurance, and internet bills.
- Working Weeks. Do not put 52. Give yourself at least 4 weeks for vacation, sick days, and national holidays. Put 48 or less.
- Profit Margin. This is the secret to scaling. Your business should make a profit on top of paying your salary. A 10-20% margin gives you cash reserves for slow months.
Billing Your Clients
Once the calculator gives you your target hourly rate, it's time to start charging it. When you lock in a new client, formalize the relationship using our service agreement generator. Be sure to state your hourly rate clearly in the compensation section.
As you work, track your hours meticulously. At the end of the week or month, plug those hours into a timesheet invoice template to generate a detailed breakdown of the time you spent on their project.
If a client prefers to pay a fixed price rather than an hourly rate, you can use your hourly rate internally to estimate the cost. For example, if you estimate a project will take 10 hours, multiply that by your rate, and send them a flat price quote. Once approved, you can bill them using a standard invoice.
Frequently Asked Questions
How do I calculate my freelance hourly rate?
Take your desired annual income, add your annual business expenses, and add a profit margin. Divide that total number by the total number of billable hours you plan to work in a year.
Why shouldn't I divide my target salary by 2,080 hours?
2,080 represents 40 hours a week for 52 weeks. If you use this number, you are assuming you will never take a vacation, never get sick, and spend 100% of your time doing billable client work. Freelancers spend up to 40% of their time on unbillable admin and marketing tasks.
What is a good billable ratio for a freelancer?
A healthy billable ratio is between 50% and 60%. This means if you work 40 hours a week, you should aim to bill clients for 20 to 24 of those hours. The rest of the time is spent running the business.
Why do I need a profit margin if I am a solo freelancer?
Your target income pays for your personal life (rent, groceries). Your profit margin is for your business. It allows you to build a financial cushion for slow months, invest in better equipment, or hire subcontractors.
Is this calculator free to use?
Yes, our freelance rate calculator is 100% free with no sign-ups required.