A freelance rate that survives non-billable time

The most common way to set a first freelance rate is to take the salary you had, or want, and divide it by the hours of a working year. It is also the most reliable way to work full time and end the year short. This article builds a rate from the ground up with our freelance rate calculator, shows which assumption moves the result most, and covers fixed-price projects and retainers. It is arithmetic on example numbers, not tax or business advice.

The salary shortcut

Say you want to take home 60,000 a year. A salaried job pays that for 52 weeks of 40 hours, 2,080 hours, so the shortcut says 60,000 ÷ 2,080 = 28.85 an hour. Three things are missing:

1. Expenses the employer used to pay: software, a computer, insurance, a desk, an accountant, payment fees.
2. Tax and contributions on the whole profit, often with no employer share to soften it.
3. Time nobody pays for: holidays, sick days, and the hours spent finding work, writing proposals, answering email, invoicing and learning.

Building the rate

Working days. 52 weeks × 5 days = 260. Take off 10 public holidays, 20 days of vacation and 5 sick days: 225 working days.

Billable hours. Not every working hour can be invoiced. If 60% of an 8-hour day is billable work, that is 225 × 8 × 0.6 = 1,080 billable hours a year: about half of the 2,080 the shortcut assumed.

Revenue needed. With 8,000 of yearly expenses and an effective 20% tax on profit, keeping 60,000 needs a profit of 60,000 ÷ 0.8 = 75,000, so revenue of 75,000 + 8,000 = 83,000.

Rate. 83,000 ÷ 1,080 = 76.85 an hour, or 614.81 for an 8-hour billed day. That is 2.7 times the shortcut, and even "double the salary rate" (57.69) would fall well short.

What moves the answer most: billable share

Keeping everything else the same and changing only the share of time you can bill:

Going from 60% to 40% billable, which is normal in a first year spent finding clients, raises the rate you need by half. By contrast, skipping all 20 vacation days only lowers it from 76.85 to 70.58, and it is a bad trade. Track your time for a few weeks before trusting any billable figure; most people overestimate it.

A buffer helps too: setting aside 10% of revenue for slow months and late payers raises the rate from 76.85 to 85.39, and it is what keeps a bad quarter from becoming a crisis.

The same model in reverse

If the market sets your rate, run it backwards. At 50 an hour and 50% billable (900 hours), revenue is 45,000; after 8,000 of expenses the profit is 37,000, and after 20% tax the take-home is 29,600, about half of the 60,000 goal. That tells you to raise the rate, find more billable work, or cut expenses, before the year runs out rather than after.

Projects and retainers

Fixed-price projects move the risk of overruns to you, so price it: estimate the hours, add a contingency (20 to 30% for unfamiliar work), multiply by your rate. 40 hours plus 25% at 80 an hour is 50 hours, a quote of 4,000. Finish faster and the difference is yours; that is the reward for carrying the risk.

Retainers trade rate for certainty. A 2,000 monthly retainer used for 30 hours pays 66.67 an hour. At a target of 80 it pays your rate only up to 2,000 ÷ 80 = 25 hours; every hour beyond is a discount. Write the hours cap into the agreement, and price extra hours separately.

Common mistakes

• Dividing by 2,080 hours. You will not bill anything like that; 1,000 to 1,400 is a more typical range.
• Forgetting that tax applies to profit, and that a freelancer often pays contributions an employer used to share.
• Leaving out the buffer. One unpaid invoice can wipe out a month.
• Pricing a project at the estimate. Estimates are optimistic; the contingency is part of the price.
• Letting a retainer's hours grow without revisiting the fee.
• Never raising the rate. Expenses and prices rise every year; a rate that stays still falls in real terms.

Once the rate is set, the invoice generator produces the invoices to send.