Why use this calculator
Almost every freelancer sets their first rate by taking a salary they liked, dividing by 2,080 hours and adding a bit. That arithmetic is wrong in three separate directions and the errors compound. It ignores that a contractor pays their own tax on gross profit rather than on a net wage, it ignores software, insurance, accounting and equipment that an employer used to absorb, and it assumes every hour worked is an hour billed when in practice quoting, invoicing, marketing and bookkeeping swallow around a third of the week.
The result is an operator who feels busy, invoices constantly and still cannot cover a quiet month. This calculator works backwards from the number that actually matters, the money left in your hand, and shows the rate, the day rate and the monthly revenue target that get you there.
How to use it
- For target take-home income, enter what you need in your hand after tax, taken from the salary you are leaving or the household budget you have to meet.
- For billable hours a week, look at last quarter's invoices and divide the hours you charged for by the weeks in the quarter rather than guessing, because almost everyone guesses high.
- Enter your non-billable hours separately so the calculator can show what you really earn per hour at the desk.
- Set working weeks a year to fifty-two less your holidays, public holidays and likely sick days.
- Take the effective tax rate from last year's assessment, dividing total tax paid by taxable profit, rather than using your top marginal rate.
- Add up software, insurance, accounting, phone, internet and equipment for business expenses.
- Finally set a profit margin, which is the buffer that funds quiet months and bad debts.
What each result means
- Recommended hourly rate
- The rate that funds your take-home income, your tax, your expenses and your margin at the billable load you entered.
- One more billable hour a week lowers the rate to
- The hourly rate you would need if you sold one more hour every working week, with the same income goal, expenses and margin. It shows how much of your rate comes from unbilled time, and what better utilisation is worth.
- Rate rounded for quoting
- The recommended rate rounded up to the nearest five dollars, because odd rates look calculated and invite haggling.
- Minimum viable rate
- Break-even with no buffer at all. Accept work below this only to fill a genuinely empty week.
- Day rate (8 billable hours)
- Eight billable hours at the recommended rate. Most clients anchor on day rates for project work rather than hourly.
- Weekly revenue target
- What you need to invoice each working week. Track this weekly rather than discovering the shortfall at year end.
- Monthly revenue target
- Required revenue spread across twelve months. Compare it to your actual invoicing every month as an early warning.
- Annual revenue required
- Total money the business must invoice and collect across the year for the plan to work.
- Pre-tax profit needed
- What the business must earn before income tax to leave you the take-home figure you asked for.
- Profit built into the rate
- The dollar buffer your margin creates each year, which funds quiet months, bad debts and reinvestment.
- Billable hours a year
- Billable hours a week multiplied by working weeks. This is the number freelancers overestimate most often.
- Billable utilisation
- The share of hours at the desk that a client pays for. Below sixty per cent your rate has to carry a lot of unpaid work.
- Effective rate across all hours worked
- Required revenue divided by every hour worked including admin. This is the honest comparison against a salary.
The formula
Pre-tax profit needed = target take-home income divided by (1 minus the effective tax rate)
Cost recovery = pre-tax profit needed plus yearly business expenses
Required revenue = cost recovery multiplied by (1 plus the profit margin)
Recommended hourly rate = required revenue divided by billable hours a week multiplied by working weeks a year
Minimum viable rate uses cost recovery in place of required revenue, so it is the rate at which you break even with no buffer at all. Effective rate across all hours worked divides required revenue by billable plus non-billable hours multiplied by working weeks, and billable utilisation is billable hours divided by total hours worked.
How this number is used in practice
The single most useful habit a new freelancer can build is measuring billable hours instead of estimating them. Timesheet data across independent professionals consistently shows utilisation in the sixty to seventy per cent range, meaning a forty hour week yields roughly twenty-four to twenty-eight billable hours.
Agencies plan around the same figure and staff their capacity accordingly. Someone who sets a rate assuming forty billable hours will come up short by a third of their income, and the shortfall shows up not as a clean gap but as constant overwork, because the natural response is to work longer rather than to charge more. Measure for one quarter, then price against what you measured.
The second lever is positioning, and it moves the rate far more than efficiency ever will. A generalist selling hours competes with everyone, so the rate stays near the market floor. A specialist selling a named outcome to a specific industry competes with nobody and can bill two or three times as much for the same underlying skill, often on fewer hours.
Notice in the examples above that the consultant on eighteen billable hours needs a rate more than five times the copywriter on thirty-two, partly because the income goal is higher but mostly because so little of the week is saleable. If your rate looks impossible at your current billable load, the answer is usually narrower positioning rather than longer days.
Do not forget the gap between invoicing and being paid. A rate that works on paper still fails if clients pay at sixty days and you have no buffer, which is why the profit margin in this calculation is not optional padding. Build a cash reserve of at least three months of personal and business expenses before you start turning down work, and put a deposit clause in every contract.
Fifty per cent up front on project work is standard in most creative and technical fields and removes the single largest cause of freelance insolvency.
Worked examples
A freelance designer wanting $85,000 in hand, 25 billable and 13 admin hours a week over 46 weeks, 30% effective tax, $12,000 expenses and a 15% margin
Recommended rate of $133.43 an hour, a $1,067.43 day rate and a monthly revenue target of $12,786.90
A specialist consultant targeting $140,000 in hand on only 18 billable hours a week over 44 weeks, 37% tax, $20,000 expenses and a 20% margin
Recommended rate of $367.00 an hour on just 792 billable hours, showing how a low billable load forces premium positioning
A production-focused copywriter wanting $70,000 in hand at 32 billable hours a week over 48 weeks, 25% tax, $6,000 expenses and a 10% margin
Recommended rate of $71.14 an hour with a minimum viable rate of $64.67 before any buffer
When people use it
- Setting a first rate when moving from employment to freelancing or contracting
- Reviewing your rate at the start of a financial year against rising costs
- Working out whether a long retainer at a discounted rate still covers your numbers
- Converting an hourly rate into a defensible day rate or project fee
- Deciding whether to raise rates or increase billable hours to close an income gap
- Comparing a contract offer against the salary you would be giving up
Tips
- Track actual billable hours for a full quarter before you trust any rate. Almost everyone overestimates by a quarter or more.
- Quote a day rate or a fixed project fee rather than an hourly rate. Hourly pricing punishes you for getting faster at your own craft.
- Raise rates on new clients first and existing clients at renewal. You will discover the market bears more than you assumed.
- Ask for a deposit of at least a third before starting work, and invoice milestones rather than everything at the end.
- Put your rate up by a small amount every year as a matter of course. Holding a rate flat is a real pay cut once costs rise.
- Keep a separate tax account and move a fixed percentage of every payment into it the day it lands, so a tax bill is never a surprise.
- If you are consistently booked out, that is not a compliment, it is a pricing signal. Raise the rate until roughly one in five enquiries declines.
What it assumes, and where it stops being accurate
- Assumes a flat effective tax rate on profit. Real income tax is progressive, so your effective rate will shift as income changes and consumption taxes such as GST or VAT are handled separately.
- Assumes no employer retirement contribution, paid leave, sick leave or insurance, which is the core reason a contract rate must exceed the hourly equivalent of a salary.
- Assumes you actually bill and collect every hour entered. Write-offs, scope disputes and bad debts are not modelled and typically consume a few per cent of invoiced work.
- Assumes expenses are steady across the year. Lumpy purchases such as a laptop or a conference should be spread across their useful life rather than loaded into one year.
- Ignores capacity limits and seasonality. Some weeks you cannot sell your full billable load no matter what your rate is.
- Ignores any consumption tax you may have to add to invoices, which is collected on behalf of the tax office and is never your revenue.
Terms used on this page
- Billable utilisation
- The share of hours worked that a client actually pays for, usually sixty to seventy-five per cent for a solo operator.
- Effective tax rate
- Total tax paid divided by taxable profit, which is always lower than your top marginal rate.
- Day rate
- A fixed fee for a day of work, conventionally eight billable hours, used as the anchor for most project quoting.
- Cost recovery
- The revenue needed to cover your pre-tax income plus business expenses, before any profit margin is added.
- Retainer
- A recurring fee for an agreed block of availability or work each month, which smooths cash flow at a modest discount.
Questions people ask
- Why is the recommended rate so much higher than my old salary divided by hours?
- Because a salary is paid after the employer has already covered retirement contributions, paid leave, insurance, equipment, software and the hours you spend on admin. As a freelancer all of that comes out of your rate, and only a fraction of your week is billable. A rate of roughly double the salaried hourly equivalent is normal, not greedy.
- How many billable hours a week should I plan for?
- Twenty-five to thirty is realistic for an established solo operator working a normal week, which is a utilisation of about sixty-five to seventy-five per cent. The rest goes to quoting, invoicing, marketing, bookkeeping and learning. Planning for forty billable hours guarantees a shortfall, because the unpaid work does not disappear, it just stops being counted.
- What profit margin should a freelancer build in?
- Ten to twenty per cent above your own pay is the usual range. It is not extra income, it is the reserve that covers a quiet month, a client who pays late, a laptop that dies or a job you have to redo. Without it the first disruption comes straight out of your personal budget.
- Should I charge different rates for different clients?
- Yes, and almost every experienced freelancer does. Rush work, difficult stakeholders, unclear scope and short engagements all justify a premium, while a long steady retainer with predictable work can justify a modest discount. Use the calculated rate as your reference point and vary deliberately rather than reacting to whoever pushes hardest.
- How do I raise my rate with an existing client?
- Give notice in writing at least a month ahead, state the new rate plainly, and tie it to the value of the work rather than to your costs. Most clients accept a single-digit percentage rise without comment because replacing a freelancer who knows their business costs them far more than the increase.
- Does this rate include sales tax, GST or VAT?
- No. Consumption taxes are added on top of your rate and collected on behalf of the tax office, so they never form part of your income. Register when you cross your jurisdiction's turnover threshold, quote your rate excluding the tax for business clients, and keep the collected amount aside rather than treating it as cash flow.
Use this with
Freelance Rate Calculator answers one part of the question. These pick up where it stops: Hourly to Salary Converter, Freelance Hourly Rate Calculator, Sole Trader Tax Calculator, Profit Margin Calculator and Break-Even Calculator.
Where these figures come from
This calculation is jurisdiction-neutral arithmetic. No country-specific rules are applied.
- Australian Taxation Office. Sole trader and contractor tax obligations, deductions and GST registration thresholds
- business.gov.au. Australian guidance on pricing, contracts and running a sole trader business
- US Small Business Administration. US guidance on self-employment costs, pricing and business planning
- GOV.UK: Working for yourself. UK self-employment registration, expenses and self assessment
Freelance Rate Calculator produces an estimate for general information. It is not financial, tax, medical, legal or engineering advice. read the full disclaimer. Spotted a wrong number? Report it and it gets fixed. The form picks up this calculator and the inputs you used.