The usual method is to look at what other freelancers charge and pick a number in the middle. That tells you what the market tolerates. It tells you nothing about whether the number covers your life.
The backwards method starts from the money you need to keep and works outward. It takes about ten minutes and it almost always produces a higher figure than people expect.
#Step 1: the money you want to keep
Not revenue. Not profit. The amount that lands in your personal account after everything.
Be specific. If you want the equivalent of an $85,000 salary and intend to put $12,000 a year into retirement, your target is $97,000 of net personal income.
#Step 2: gross it up for tax
This is where most calculations go wrong. Grossing up is not the same as subtracting.
If your combined income and self-employment tax rate is 40%, you do not need $97,000 ÷ 0.6... you need exactly that: $161,667. Subtracting 40% from $161,667 leaves $97,000. Subtracting 40% from $97,000 leaves $58,200, which is the wrong direction entirely.
Profit needed = net needed / (1 − total tax rate)US freelancers face self-employment tax of 15.3% on net earnings up to the Social Security wage base, on top of federal and state income tax, because you pay both the employer and employee share. A combined effective rate of 28% to 38% is typical.
#Step 3: add business costs
Everything your employer used to buy invisibly:
- Health insurance — frequently $6,000 to $14,000 a year in the US
- Software and subscriptions — $1,500 to $4,000
- Hardware, amortised — $1,500 to $3,000
- Professional liability and business insurance — $500 to $2,000
- Accounting and legal — $1,200 to $3,500
- Coworking or home office costs — $0 to $6,000
- Marketing, website, professional development — $1,500 to $4,000
Fifteen to twenty thousand dollars a year is normal, and it is entirely invisible until you are paying it.
#Step 4: add a buffer
Bad debt, scope creep, a client who disappears mid-project, and the reinvestment that keeps you employable. Ten to twenty percent is reasonable. This is the line that separates a business from a job with worse benefits.
#Step 5: divide by billable hours, not working hours
The step that changes everything.
You will not work 2,080 hours. Between holiday, illness and gaps between contracts, most freelancers work 44 to 48 weeks. And of the hours you work, only a fraction are billable.
Sales calls, proposals, invoicing, chasing payment, bookkeeping, marketing, learning, and the administration of running a business are all real work that nobody pays for directly.
Realistic billable utilisation:
- 40% to 50% — first year, or a practice with heavy business development
- 55% to 65% — established solo freelancer with steady referral flow
- 70%+ — usually only on long retainers, and often a sign you are neglecting pipeline
At 46 weeks, 40 hours, 60% utilisation, you have 1,104 billable hours a year — not 2,080.
#Putting it together
- Net needed: $97,000
- At a 34% combined tax rate: $146,970 profit needed
- Plus $18,000 business costs: $164,970
- Plus a 15% buffer: $189,716 of revenue
- Divided by 1,104 billable hours: $172 an hour
Compare that against the naive calculation — $85,000 ÷ 2,080 = $41 an hour. The correct figure is more than four times higher.
That gap is why so many freelancers work constantly and feel poorer than they did as employees. Run your own numbers with the freelance rate calculator before you quote anything.
#This is a floor, not a price
The number you have just calculated is the point below which you are working at a loss relative to your goals. It is an internal figure. It is not what you tell clients.
Price above it for specialist work, rush deadlines, difficult clients, or work where the outcome is worth a great deal to the buyer. A project that unlocks $400,000 of revenue for a client is not priced by your hourly cost.
#The reaction to expect
Most people's first reaction to their calculated floor is that no client would pay it. Two things are usually happening.
First, the figure is being compared against a salaried hourly equivalent, which is not the right comparison — an employer pays roughly 25% to 40% on top of salary in taxes and benefits before overheads.
Second, you may genuinely be positioned in a market that will not support it, which is useful information. The answer is to change positioning, specialise, or move to fixed-fee pricing on outcomes — not to accept a rate that does not cover your life.
Frequently asked questions
What billable utilisation should I assume?
Track a normal fortnight and count only hours a client would accept on a timesheet. Most established solo freelancers land at 55% to 65%. Assuming 100% is the single largest cause of underpricing in independent work.
Should I charge different rates to different clients?
Yes, and most experienced freelancers do. Rush work, difficult clients, and work outside your core specialism should carry premiums. Long retainers with guaranteed volume can justify a discount from your standard rate.
How do I raise my rate with existing clients?
Raise for new clients first to establish the number. For existing clients, give 60 days notice in writing at a natural renewal point, briefly and without over-explaining. Expect to lose the most price-sensitive one, which is usually the right outcome.