How to Calculate Your Freelance Hourly Rate (Step by Step)

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Your freelance hourly rate is your desired annual income plus business expenses, divided by the number of hours you can actually bill a client for in a year, not your total working hours. Most freelancers are only billable 60-80% of the time they work, so skipping that adjustment and picking a rate that sounds competitive tends to undercharge for the year ahead. Recalculating the number at least once a year keeps it matched to your actual expenses and workload.

Key takeaways

Start from your desired annual income plus business expenses, then divide by billable hours, not total working hours.
Most freelancers are only billable 60-80% of their working time: admin, marketing, and unpaid work take up the rest.
Skipping this math and picking a rate that "sounds competitive" is the most common way freelancers underprice their time.
Recalculate at least once a year, since expenses and your desired income both tend to change.

Why "Billable Hours" Is the Number That Matters

A freelance hourly rate needs to cover a full year of income and expenses using only the hours you can actually bill a client for, not the total hours you work. Time spent on admin, invoicing, marketing, and finding new clients is real work, but it isn't billable, and a rate that ignores this shortfall will consistently under-earn.

The Calculation, Step by Step

Set your desired annual income: what you want to take home before tax.
Add annual business expenses: software, insurance, equipment, anything the business itself pays for.
Work out available hours: weeks worked per year multiplied by hours worked per week.
Apply a billable utilization rate: the share of those hours you can actually invoice for, typically 60-80%.
Divide total revenue needed by billable hours: that's your hourly rate.

A Worked Example

Target income of 60,000 plus 6,000 in expenses is 66,000 needed for the year. Working 48 weeks at 40 hours gives 1,920 available hours. At 70% billable utilization, that's 1,344 billable hours. 66,000 / 1,344 comes to roughly 49 per hour, noticeably higher than a rate set by guessing.

Revisit It At Least Yearly

Expenses rise, your income goals change, and your actual billable utilization shifts as your client mix changes. A rate calculated two years ago is quietly out of date even if it still "feels" about right.

A free hourly rate calculator that shows the full breakdown, not just the final number, makes it easy to see exactly which input to adjust when your rate needs a refresh.

Frequently asked questions

What billable utilization rate should I use if I'm new to freelancing?

Start conservative, around 50-60%, since new freelancers typically spend more time on marketing and proposals relative to billable work.

Should taxes be included in this calculation?

You can gross up your desired income for estimated tax before dividing by billable hours, so the final take-home figure is what you actually intended.

What if my calculated rate is higher than what clients in my market pay?

That's useful information either way: it may mean adjusting your expenses, your utilization assumption, or the type of client you're targeting.

Does this formula work for part-time freelancers?

Yes, just adjust the available hours per week and weeks worked per year to match your actual schedule.

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