How freelancers should set their rates

Some freelancers divide their previous salary by the hours available, or copy market rates without understanding what those rates contain. The problem is that not every hour you work is billable: admin, marketing, proposals and meetings are not paid.

People also forget leave and sick days, expenses and a tax reserve, only to discover later that their rate does not cover the real cost of working. The right rate starts from your costs, not only from market prices.

To price your service you need: your desired income for the year what you want to earn after costs, your annual expenses software, subscriptions, office, marketing, an expected tax reserve percentage, the share of non-billable time, your vacation and sick days, your hours per week, a profit margin you want to add, and the expected project hours to price specific jobs.

These are exactly the calculator’s fields, and the closer they match your reality, the more accurate the result.

Billable hours are the hours you actually get paid for. Find them by removing the non-billable share from your total annual hours, then subtracting leave and sick hours.

Using the calculator’s example: 40 hours per week × 52 weeks = 2,080 hours. After removing 20% non-billable time and 25 days of leave and sickness, about 1,464 billable hours remain each year. That number is the foundation your rate is built on.

Required revenue = (desired income + expenses) ÷ (1 − tax reserve ÷ 100). With a desired income of 36,000 dollars, expenses of 4,000 dollars and a 10% tax reserve, the required revenue is about 40,000 ÷ 0.9 ≈ 44,444 dollars.

The tax reserve is a personal estimate, not an official tax schedule; rates and rules vary by country, so verify them where you operate. The next step spreads this revenue across your available hours.

The minimum hourly rate = required revenue ÷ billable hours. In the example: 44,444 ÷ 1,464 ≈ 30.36 dollars per hour. That is the rate that covers your costs with no profit built in.

To add a profit margin, raise the revenue: the recommended rate ≈ 35.72 dollars per hour at a 15% margin. From it come the daily rate ≈ 35.72 × 8 ≈ 285.71 dollars and a 200-hour project price ≈ 7,143 dollars. Treat the recommended rate as your negotiation baseline, not a ceiling.

The logic above gives a cost-based rate, but the final price is also shaped by market value, experience and specialisation: a rare specialist skill justifies a higher rate than a common service many competitors offer. Also weigh the value of the outcome to the client, the project length and any risks.

Do not be afraid to review your rates regularly: as your experience grows and demand rises, the rate you need to cover costs falls relatively, and you may deserve more than the formula suggests.

This method is a personal planning tool, not a substitute for professional advice. Tax obligations for freelancers, invoicing, business registration and intellectual property all differ by country.

If you are starting out seriously, consult a licensed accountant or tax adviser to understand your obligations, and check the official authorities for registering your activity and complying with the applicable rules. Getting the basics right early will save you problems later as your business grows.